Singapore Petroleum's profit to soar

Singapore Petroleum's profit to soar

Bloomberg, Singapore

Singapore Petroleum Corp., the smallest oil refiner in the island-state, said earnings this year will reach a record because of rising demand for fuels and higher profit from processing crude oil into fuels.

The profit, or refining margin, from processing a barrel of crude oil into fuels is "robust" as supply and demand of fuels are "finely balanced," Choo Chiau Beng, chairman of Singapore Petroleum, said in an interview yesterday, without giving a forecast for 2005 profit.

Asian oil refining margins have surged since Hurricane Katrina more than two weeks ago disrupted refinery operations and created fuel shortages in the U.S. Gulf Coast, resulting in imports from Asia and Europe.

Fuel prices have risen to records this year on increased demand from China and the rest of Asia, because of economic expansion.

"Next year, we still see a good year for the refining business," Choo said. "As more people drive cars, more trucks on the roads, they use more oil."

The company's refining margin in the second quarter this year rose to US$4 a barrel compared with $3.50 from the same period a year earlier.

Singapore Petroleum's 2004 net income rose more than fourfold to S$252.9 million ($151 million), or 59.2 Singapore cents a share, from S$59 million, or 13.9 cents.

Singapore Petroleum plans to invest more in exploring for oil and gas because it's more profitable, Choo said. The company has oil and gas exploration and production projects in Indonesia, Vietnam and Cambodia.

"That's where the big margins are," Choo said.

In Southeast Asia, energy exploration and production are mostly conducted by companies under so-called production-sharing contracts with governments.

Singapore Petroleum has oil and gas exploration and production projects in Indonesia, Cambodia and Vietnam.

Indonesian President Susilo Bambang Yudhoyono's plans to cut fuel subsidies and raise prices may make it more attractive for companies such as Singapore Petroleum to expand in the Southeast Asian country.

"We will expand our market in Indonesia as Indonesia liberalizes, and subsidies get reduced," Choo said.

It's "more difficult" for investors or overseas refiners to buy a stake in Singapore Petroleum after the company's share prices rose, Choo said. Singapore Petroleum shares have risen almost threefold from a year ago.

Hindustan Petroleum Corp. and Bharat Petroleum Corp, India's second- and third-largest state-run refiners, are planning to buy a stake in Singapore Petroleum Co., the Financial Express reported on Aug. 29, citing officials it didn't identify.

"Unfortunately, when it was available a few years ago, nobody was really interested," Choo said. "They have to pay the market price if they really want to buy a share."

Shares of Asian oil refiners have risen because of higher earnings from processing oil. Profit from turning crude oil into gasoline, diesel and other products surged to a record last week, Bruce Lanni, a senior analyst at A.G. Edwards & Sons Inc., said in a note on Sept. 12.

The refining margin at Singapore refineries gained 20 percent to $13.17 a barrel in the week ended Sept. 9 compared with a week earlier, Lanni said.

Keppel Corp. holds a 49 percent stake in Singapore Petroleum, which owns half of Singapore Refining Co.

Chevron Corp. owns the remaining 50 percent in Singapore Refining, with the capacity to process as much as 285,000 barrels of oil a day.