Published April 21, 2009

SPC posts 43.5% drop in Q1 profit to $55.6m

By RONNIE LIM

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SINGAPORE Petroleum Company has reported a 43.5 per cent drop in first-quarter net profit to $55.6 million from a year earlier as lower oil prices led to a 46.8 per cent fall in revenue to $1.4 billion.

Earnings per share slipped to 10.8 cents from 19.1 cents as the company provided for impairment charges of $43.3 million for its Indonesian Jeruk field in a review of its exploration and production (E&P) assets.

A better downstream performance - contributing turnover of $1.41 billion and an operating profit of $118.6 million - helped compensate for upstream E&P losses caused by lower crude oil prices.

Refining margins averaged US$4.50 a barrel, which although down from US$7 in Q1 last year, was a marked improvement from the average US$1 a barrel margin in the second half of last year.

But SPC - which has a half share in the 290,000 barrels per day Singapore Refining Company - had to reduce its crude runs in Q1 and operated at 93 per cent capacity due to continuing weak demand for oil products.

CEO Koh Ban Heng said: '2009 began with an uncertain outlook, but oil prices and refining margins came off from their lows in the last quarter of 2008.

'SPC turned in a commendable performance this quarter, with better-than-expected profits from its mainstay downstream business. With cost-efficient operations, the downstream business has continued to be earnings accretive despite the sharp downturn.'

Plant maintenance shutdowns - including by ExxonMobil here in March - contributed to the better refining performance, which help mitigate lower Q1 sales.

On Jeruk, SPC said that it has taken a prudent approach and provided for full impairment of drilling costs so far, 'given the technical complexities of the reservoir and uncertainty of future commercial development under the current oil price environment and outlook'.

It said: 'There is no cashflow impact from this impairment provision as past costs incurred have been capitalised. SPC will continue to review its E&P portfolio to ensure the carrying values are recoverable.'

Prospects for 2009 remain uncertain, with demand for oil products likely to stay weak, SPC warned. It also expects further pressure on refining margins as new capacity in India, Vietnam and China comes on stream in the next few quarters.

To cope with the downturn, the company has introduced stringent controls over operating and capital expenditure and will continue to optimise refining operations. It has also sharpened the overall management of accounts receivables and inventories.

Mr Koh said: 'The group remains well positioned, with diversified cash flows from both downstream and upstream operations. Importantly, SPC ended the quarter with a healthy balance sheet. The cash and cash equivalents balance as at March 31 was $311.9 million. This will provide us with the resources to seek investment opportunities.'