Published January 7, 2009

Proven hands to steer SPC through the storm

By RONNIE LIM
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IN A 'perfect storm' like now, it's all hands on deck, and especially reassuring for companies to have experienced ones at the helm. Singapore Petroleum Company (SPC), in that respect, is fortunate to have an intact crew, including its soon-to-retire CEO Koh Ban Heng, to steer it through the daunting year ahead.

Insiders say Mr Koh's retirement on Feb 5, under the company's policy allowing employees to call it a day at age 60, was 'no surprise' as he had been signalling that he wanted to do so since last year. His recall, on a yearly contract basis, from March 1, also doesn't mean there isn't succession planning, they add.

At least a handful of senior executives are ready to step in - just as Lee Chiang Huat, its senior vice-president and CFO, will do so in the interim, while Mr Koh is on sabbatical.

Rather, the move reflects more management's thinking that the 34-year veteran (who has been with SPC, and in every division, since 1974, and its CEO since August 2003) can still contribute, especially in these turbulent times. Besides, he will also provide some continuity, until such time as a successor is named.

Testimony to this is SPC's latest annual report, which said that Mr Koh has delivered 'exceptional results' over the last four years and was instrumental in the landmark refining and retail acquisitions in 2004 (when it took over BP's stakes). Upstream, he also paved the way for several key exploration and production (E&P) investments.

But it's stormy seas ahead. Just last month, SPC warned that its 2008 earnings - to be announced on Jan 20 - have been severely weakened by recent falls in crude oil (prices have plunged to US$35-45 per barrel levels since last July's peak of US$147-plus) as well as in oil product prices.

While the company has during Mr Koh's stewardship - and also that of SPC chairman Choo Chiau Beng, now also Keppel Corp CEO - increasingly moved into oil exploration and production, oil refining, however, still contributes the lion's share of its turnover, and that is where SPC is hurting. 'The drastic slowdown in refined products demand in the second half of 2008 has caused a sharp drop in refining margins, which has impacted the group's performance,' it recently warned.

In that respect, SPC's strategy to have greater upstream E&P focus - especially after KepCorp became a majority shareholder in 2000 - is crucial, as Mr Koh told BT in an earlier interview. This will help SPC balance its reliance on refining, which is very volatile.

At that time, SPC was producing just 2,800 barrels daily of oil from its Indonesian field in Kakap. Today, it is producing over 10,000 barrels per day (bpd) of oil equivalent not only from its Indonesian Kakap and Oyong fields, but also from its Chinese oilfields in Bohai Bay. And last November, SPC ventured into its first onshore E&P block in East Kalimantan, with the move also marking its first outing as a field operator.

But this is still some way from Mr Koh's ultimate aim of having E&P supply as much as 70,000 bpd of SPC's half share of the 145,000 barrels of crude needed for its joint venture Singapore Refining Company's (SRC) 290,000 bpd refinery on Jurong Island. One obstacle has been the recent high cost of acquiring E&P assets.

Downstream, SPC, with partner Chevron, has also been trying to beef up the competitiveness of the SRC refinery, with the latest ongoing project being that to produce ultra-low-sulphur diesel. But given falling regional demand, it is, however, putting off for the time being others like that for 'green' gasoline and a cogeneration plant.

Retail-wise, while the SPC 'red lion' logo has now spread to over 38 petrol stations in Singapore, it's a tough dog- eat-dog business.

With practically all regional economies slowing this year, it definitely won't be smooth sailing ahead as demand for oil products declines further. But a tight SPC ship, led by the team headed by Mr Koh and Mr Choo, will certainly help.