Published January 21, 2009

SPC reports 55.4% fall in earnings to $229.7m

Oil price volatility hits refining but prudent inventory hedging pays off

By RONNIE LIM

	Email this article
	Print article
	Feedback

DESPITE its profit warning last month, integrated Singapore Petroleum Company yesterday said that thanks to prudent inventory hedging, it managed to chalk up net profit of $229.7 million for FY 2008 - albeit 55.4 per cent lower than 2007's all-time record of $514.7 million.

This was achieved on the back of a 26.9 per cent increase in revenue to $11.1 billion from 2007's $8.8 billion. Earnings per share, however, fell by 55.3 per cent to 44.61 cents from 99.9 cents a year ago.

SPC - which is in upstream oil exploration and production (E&P) and downstream refining/marketing - is paying a final ordinary dividend of eight cents per share, bringing its total dividend payout for the year to 28 cents, or a payout ratio of about 63 per cent of net profit.

Its chairman Choo Chiau Beng said that '2008 had been a most challenging year. Oil prices and refining margins climbed to record highs in mid-2008 and (then) fell sharply in the second half'.

'SPC had adopted a prudent risk management policy towards hedging the group's inventory. Thus, despite writing down inventory at year-end to account for the severe drop in oil prices, the group turned in a profitable performance for 2008.'

SPC's results came even as crude oil prices yesterday slipped further to US$33 a barrel amidst a global economic slowdown, or more than US$100 down from the peak of US$147-plus a barrel last July.

Its refining operations were hit by the oil price volatility during the year. While first-half average refining margins came to about US$10 a barrel, this slumped to US$1 a barrel in the second half due to weaker oil product demand. For 2008 as a whole, SPC recorded an average refining margin of about US$5.50 a barrel.

For 2008, downstream refining/marketing contributed $10.8 billion in turnover and $157.6 million in operating profit, which was a 70 per cent drop from 2007.

On the other hand, E&P contributed $329.2 million in turnover and $156 million in operating profit. E&P earnings grew 186 per cent as a result of increased production from SPC's stakes in various Indonesian and Chinese oilfields - which gave it about 6,600 barrels of oil equivalent a day last year.

CEO Koh Ban Heng said that SPC's move into upstream E&P, which started in 2000, is clearly paying off.

'Upstream contributed about 40 per cent of the group's 2008 after-tax earnings. We have exceeded our near-term target to have E&P contribute at least 30 per cent of the group's bottom line, well ahead of our initial schedule,' he added.

SPC, which together with Chevron have each a half stake in the 290,000 barrels per day Singapore Refining Company refinery on Jurong Island, earlier indicated that despite the market downturn it was proceeding with a US$81 million revamp of its hydro-sulphuriser to produce ultra-low sulphur diesel.

It had earlier told BT that it was 'reviewing' two other projects, comprising an estimated US$200-300 million plant to produce ultra low sulphur gasoline and a US$100 million cogeneration plant to supply its own utilities.

Yesterday, the company maintained that it will 'continue to review all its capital investments and operating expenditures to ensure that they make economic sense in the current difficult environment'.

But it added that 'with low gearing and no long-term borrowings to be refinanced, the group is financially robust . . . and will continue to invest prudently to benefit from opportunities that may arise from the current downturn.'