Purchase gives Chinese oil giant a refining foothold in Singapore oil hub
By RONNIE LIM
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(SINGAPORE) PetroChina's S$1.47 billion cash purchase of Keppel Corp's entire 45.51 per cent stake in Singapore Petroleum Company (SPC) is seen as 'win-win' for seller and buyer, even if it means an end to local ownership of Singapore's only 'homegrown' oil company.
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| S$1.47 billion deal: (From left) Mr Zhang Fan from PetroChina Int'l's Legal Affairs Department; Mr Xia Hongwei, managing director of PetroChina Int'l (S'pore); Mr Choo Chiau Beng, KepCorp CEO; and Mr Teo Soon Hoe, KepCorp senior executive director & group finance director, after the signing of the SPC sale agreement |
Given the mega sums involved - PetroChina, the world's second biggest company, will also make a mandatory general offer for SPC - the purchase was a 'hush-hush' deal known to only a very select group, sources said. But SPC's 50:50 joint venture with Caltex in the 290,000 barrels per day (bpd) Singapore Refining Company refinery on Jurong Island suggests that 'someone high up in parent Chevron Corp may have been given the heads up', sources said, even as top SPC management were only informed last Friday of the done deal.
At S$6.25 a share, the deal values SPC at S$3.2 billion - which is still a relative bargain for the Chinese oil giant as it will get a 145,000-bpd refining foothold in Singapore's strategic oil hub. This does not include SPC's producing E&P assets in Indonesia and China which yield an average net production of 8,475 barrels of oil equivalent per day - of which over half come from its Chinese offshore fields in Bohai Bay.
SPC's CEO Koh Ban Heng had earlier indicated that it would cost about US$5 billion to build a moderately complex 200,000 bpd refinery here, although industry observers noted that the SRC refinery is relatively old in that 'the first unit was built 30 years ago, while the second was in the early 80s'.
Nevertheless, the refinery has undergone upgrading over the last few years, with the latest project being an US$81 million revamp of its hydro-sulphuriser to produce ultra-low-sulphur diesel, with this plant scheduled to start up in the second half of this year.
Pricing is, however, just one factor. As PetroChina itself indicated: 'SPC will become a new platform for the implementation of our international strategy', with its refining foothold here adding the latest piece in the jigsaw.
Starting with oil trading here, PetroChina went on to invest US$160 million for a 35 per cent stake in Hin Leong Trading's Universal Terminal in 2006, with this enabling it to hold stocks at the 2.28 million cu m tankfarm to support the China market.
PetroChina was known to have long had aspirations for refining operations here - as BT reported last March - although the company denied it was studying building a world-scale refinery here at that time. Sources said it started discussions with KepCorp on the SPC stake also at about that time, 'although the price was not right then'.
There will be strategic advantages for PetroChina from its SPC investment, as Chinese demand for fuels continues to grow. Besides supplying China, PetroChina can also refine crude from the Middle East and Africa here and sell products to its other main markets in Indonesia, Vietnam, Singapore and South Korea. 'The Chinese can also bring in their refinery technologies, which are quite advanced, and also have the financial muscle for future refinery expansions,' one industry official said.
'What is certain is that PetroChina can further grow SPC, which is something KepCorp realises it cannot do, unless it is prepared to invest much more in the SRC refinery,' sources said.
A Chevron spokeswoman in Hongkong told BT: 'Chevron continues to see Singapore as an important market ... We have had a long and positive partnership with SPC and Keppel through our SRC joint venture and we look forward to having a similar positive relationship with PetroChina, when this transaction is finalised.'
For KepCorp, the deal - which translates into a 24 per cent premium over SPC's closing price of S$5.04 last Friday - will result in a net profit of about S$660 million. 'We are happy with the price, it's an attractive deal,' a KepCorp spokeswoman said yesterday.
'It's a win-win,' she said. It will enable both sides to 'explore opportunities in the offshore industry and other areas of mutual benefit', the company earlier said, although it did not elaborate what these are.
On speculation that the sale was prompted by potential cashflow problems arising from offshore rig payment issues, the KepCorp spokeswoman assured this was not the case. At end-March, KepCorp had S$174 million in cash which translates to a gearing of 0.02 times.
'Our offshore marine business is still cashflow positive, and our yards are still busy this year, with next year still okay,' she said.
While everything seems hunky-dory with the deal corporate-wise, some industry players however said they are disappointed by the divestment of the long-touted 'homegrown' company - with its Red Lion trademark.
It reflects somewhat Singapore's lackadaisical attitude towards having a strategic local stake in the oil refining sector here, one felt, conceding however that 'PetroChina can't just pack up and move the refinery out of Singapore'.
With rival global refining hubs emerging, including in India, the Economic Development Board (EDB) has in fact been trying to attract at least one more world-scale refinery to expand Singapore's 1.3 million bpd refining capacity. These include 'Chinese companies looking at international investments', an EDB official earlier indicated, and PetroChina's foothold through SPC may possibly be only the start of more such transactions.
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