Petron eyes restart of Philippines' oil refinery in H2

MANILA, Philippines (UPDATE 8 a.m., March 11)— The Philippines’ lone oil refinery is seen coming back online in the second half, a welcome sign that businesses are pricing in economic recovery that inevitably brings with it fuel demand.

“The company looks forward to significant demand recovery this 2021 and plans to resume refining by the second half of the year,” Petron Corp. said in a disclosure to the stock exchange on Wednesday. Shares in Petron were trading down 0.87% at P3.41 apiece as of 12:33 p.m.

The decision to reopen followed a P3-billion capital infusion to the Bataan plant in January which at the time, was the clearest signal that tycoon Ramon Ang was not about to give up on his refinery business, even following Pilipinas Shell Corp.’s exit.

At the height of lockdowns in August last year, Shell announced shutting down its Tabangao refinery plant that generates 110,000 barrels of oil a day, prompting fears that Petron is about to follow suit. 

Petron’s refinery is bigger and produces 180,000 barrels per day so its closure would have had remarkably increase the country’s dependence in oil imports, over 80% of which are already funding annual fuel needs. The refinery did halt operations temporarily in January for maintenance, and amid lackluster oil demand at the time.

“As the economy is set to reopen, (Petron’s decision is) in anticipation of future demand,” Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said in a Viber message.

Although restarting the refinery may mean some economic activity is coming back, Jason Escartin, research associate at China Bank Securities Corp., tempered expectations and said that pre-pandemic economic output may only return in "2 to 3 years." "This means that domestic oil demand may follow this outlook...," he said in an email.

Currently, only 50% of typical capacity of public transport are running in most of the archipelago under either a general community quarantine or its modified and more relaxed version. That has been the case since at least June last year— save for a brief return to tighter lockdowns in Metro Manila in August— grossly pulling down oil consumption.

For Petron, last year’s pandemic impact meant a 27% year-on-year decline in its sales volume to 78.6 million barrels in 2020, financial results showed. As a result, consolidated revenues dropped a larger 44% to P286 billion in the same period.

For all of last year, the oil company posted a net loss of P11.4 billion, reversing a P2.3 billion net income in 2019. Full-year losses were nonetheless narrower than in the first three quarters as fuel demand slowly rebounded in the final 3 months of 2020.

“We have been working hard to minimize the impact of the pandemic on our business and our performance in the second half of 2020 proves that we are moving in the right direction,” Ramon Ang, president and chief executive, was quoted as saying in a statement.

For this year, apart from a possible recovery, a recent surge in global oil prices is likewise working on Petron’s favor. 

“We look forward to sustaining our recovery as we anticipate higher demand and a more stable industry situation with an end to this crisis finally in sight,” Ang said.

Editor's note: Added analyst comments, corrected reopening to "second half" not "second quarter."