Published October 22, 2008

SPC Q3 earnings dive 99.5% even as turnover soars

Company hit by volatile oil prices, fall in demand for refined products

By RONNIE LIM

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OIL refiner and explora- tion/production company Singapore Petroleum Company (SPC) has been hit by the double whammy of volatile oil prices and the global financial crisis.

Silver lining: SPC managed to maintain crude throughput and sales volume in Q3

Despite a 46 per cent higher third quarter turnover of $3.3 billion, SPC saw its Q3 net profit plunge to $507,000, or by 99.5 per cent, from $98.12 million in Q3 last year. Earnings per share was 0.12 cent, also sharply down from 19.03 cents in Q3 last year.

SPC said that high oil prices at the beginning of the June-Sept quarter (oil hit a peak of US$147-plus in July) adversely affected demand.

'As the quarter progressed, the global financial crisis and the post-Beijing Olympics slowdown resulted in demand for refined products being curtailed further.

'The financial crisis led to an unwinding of positions which exacerbated the fall in oil prices. By the end of the quarter, oil prices had declined as much as 40 per cent from its record highs in July,' the company added.

With the slowdown in product demand, SPC saw its average Q3 refining margin drop to US$4 a barrel, compared to US$5 in the same quarter last year.

This was also considerably down from US$13 in Q2 and US$7 in Q1 this year.

The steep decline in crude and product prices required SPC to mark down its inventory to month-end September prices, with this resulting in a write-down of $125.3 million for the quarter.

SPC however, said it recorded a fair-value gain on the hedging of its crude and product inventory of $113.9 million, partially offsetting the inventory write-down to month-end prices. 'The lower refining margin, inventory write-down and the weak US dollar resulted in a lower gross profit for the quarter. The gross profit of $68.4 million was a 53 per cent decline from the corresponding quarter in 2007.'

Downstream refining contributed $3.2 billion in Q3 turnover and an operating loss of $18.9 million, while upstream E&P contributed $87.5 million in turnover and an operating profit of $43.6 million during the quarter.

Still, despite the price volatility, SPC said that it managed to maintain its crude throughput and sales volume during Q3 at levels comparable to the same quarter last year.

For the first nine months, the company's crude throughput totalled 36.9 million barrels compared with 38.5 million in the corresponding period last year.

Sales volume for the nine months was 57.9 million barrels versus 58.4 million barrels in the nine months of last year.

Looking ahead, SPC said that 'prospects for the group's business will continue to be uncertain and affected by the current global financial crisis and the severe oil price volatility'.

Its share price hit a year-low of $2.95 in intra-day trade yesterday before closing at $3.01, or three cents down.