STAR PETROLEUM REFINING Management's Discussion and Analysis of Financial Condition and Result of Operations
Star Petroleum Refining Public Company Limited
For Quarter 2/2023 and 6 months ended June 2023
Table of Contents | |
Financial Performance | 5 |
Financial Results | 5 |
Analysis of Financial Position | 8 |
Statement of Cash Flow | 9 |
Financial Ratios | 10 |
Market Outlook | 11 |
Appendix | 12 |
Management's Discussion and Analysis of Financial Condition and Result of Operations
1. Company's Operating Result
(US$ Million) | Q2/23 | Q1/23 | +/(-) | Q2/22 | +/(-) | 6M/23 | 6M/22 | +/(-) |
Total Revenue | 1,557 | 1,736 | (180) | 2,254 | (698) | 3,293 | 4,222 | (928) |
EBITDA | (55) | 67 | (122) | 278 | (333) | 12 | 496 | (484) |
Adjusted EBITDA (1) | (15) | 62 | (77) | 223 | (238) | 47 | 319 | (272) |
(Loss) on foreign exchange | (4) | (0) | (3) | (18) | 15 | (4) | (11) | 7 |
Net income | (61) | 37 | (98) | 206 | (268) | (25) | 365 | (390) |
Net income | (0.01) | 0.01 | (0.02) | 0.05 | (0.06) | (0.01) | 0.08 | (0.09) |
(US$ per share) | ||||||||
Accounting gross refining | (1.45) | 6.90 | (8.35) | 22.93 | (24.38) | 2.75 | 21.80 | (19.05) |
margin (US$/barrel) (2) | ||||||||
Market gross refining | 1.34 | 6.36 | (5.02) | 18.92 | (17.58) | 3.86 | 13.82 | (9.95) |
margin (US$/barrel) (3) | ||||||||
Crude intake | 159.0 | 162.2 | (3.2) | 156.0 | 3.0 | 160.6 | 153.1 | 7.4 |
(thousand barrels/day) | ||||||||
Crude intake Utilization | 91% | 93% | -2% | 89% | 2% | 92% | 88% | 4% |
(Baht Million) | Q2/23 | Q1/23 | +/(-) | Q2/22 | +/(-) | 6M/23 | 6M/22 | +/(-) |
Total Revenue | 53,883 | 59,130 | (5,246) | 78,008 | (24,125) | 113,013 | 143,412 | (30,400) |
EBITDA | (1,891) | 2,242 | (4,133) | 9,632 | (11,523) | 350 | 16,894 | (16,543) |
Adjusted EBITDA (1) | (499) | 2,082 | (2,581) | 7,732 | (8,231) | 1,559 | 10,882 | (9,323) |
(Loss) on foreign exchange | (134) | (18) | (116) | (639) | 506 | (151) | (397) | 246 |
Net income | (2,105) | 1,219 | (3,323) | 7,156 | (9,261) | (886) | 12,440 | (13,326) |
Net income | (0.49) | 0.28 | (0.77) | 1.65 | (2.14) | (0.20) | 2.87 | (3.07) |
(Baht per share) |
- Adjusted EBITDA refers EBITDA excluding Stock gain/loss, net NRV and Extra item
- margin includes inventory gain/loss based on weighted average inventory cost.
- margin is calculated based on current replacement cost.
Exchange rate (Baht/US$) | Q2/23 | Q1/23 | +/(-) | Q2/22 | +/(-) | 6M/23 | 6M/22 | +/(-) |
Average FX | 34.66 | 34.08 | 0.58 | 34.60 | 0.06 | 34.36 | 33.89 | 0.47 |
Closing FX | 35.75 | 34.26 | 1.49 | 35.46 | 0.29 | 35.75 | 35.46 | 0.29 |
In Q2/23, oil prices faced significant pressure, influenced by a combination of factors, such as worries about a global recession, China's slower than expected economic growth, uncertainty surrounding the U.S. debt ceiling and interest rate hikes to control inflation rate. Additionally, there were anticipated increased export levels from China and Russia, further contributing to the downward pressure on oil prices. Despite receiving some support from OPEC+ production cuts, notably Saudi Arabia's decision to cut output by 1 MBD in July, as well as the ongoing turnaround season, and increased demand for aviation during the summer travel period, those reasons are resulted to oil prices remained volatile.
In Q2/23, the utilization rate for the crude intake was 159 thousand barrels per day, or equivalent to 91% of its refining capacity, slightly lower than the prior quarter. SPRC maintained crude and product optimizations to maximize domestic demand. Similar to the prior quarter, SPRC maintained a good margin captured by our Bottom Line Improvement Program (BLIP) refinery optimizations across all areas (Crude, Product and Synergy).
A continuing fall-off in oil prices this quarter caused a loss in SPRC's EBITDA, EBIT and net earnings for Q2/23. NIAT for the quarter was loss of US$61 million compared to gain of US$37 million in the prior quarter. Accounting refining margin in Q2/23 was negative at US$(1.45)/bbl compared to US$6.90/bbl last quarter, impacted by a stock loss, which also included a loss from an inventory write-down to net realizable value due to the declining oil prices, especially at the end of the quarter. Excluding stock gain (loss), the market refining margin of US$1.34/bbl, dropped from US$6.36/bbl due to declining product spreads that were pressured by
2
Management's Discussion and Analysis of Financial Condition and Result of Operations
weak refined product demand as a result of concerns about a global recession and uncertainty surrounding interest rate hikes, and exports from China and Russia. Furthermore, the foreign exchange loss of US$4 million from the depreciation of the Baht against the US dollar during the quarter was partially offset by lower operating expenditures this quarter compared with the prior quarter.
Compared Q2/23 with Q2/22, sales revenue decreased 31%, mainly due to a decrease in product prices, partially offset by slightly higher sales volume due to demand from the driving season. Negative EBITDA, EBIT and net loss in Q2/23, while they were positive in Q2/22. There was a significant drop in earnings due to the lower market refining margin in Q2/23 of US$1.34/bbl compared to US$18.92/bbl in Q2/22 and a stock loss in Q2/23 due to the declining in oil price, on the contrary to a stock gain in Q2/22 from an increase in oil price as a result of the Russian-Ukraine conflict.
Compared 6M/23 with 6M/22, sales revenue decreased 22%, which was impacted by a significant decline in oil prices, partly offset by higher sales volume compared with the same period in the prior year. Negative EBITDA, EBIT and net loss in 6M/23 were mainly due to weak margins and stock losses after oil prices decreased in this period. NIAT in 6M/23 was a loss of US$(25) million, considerably lower than the previous period of US$365 million in 6M/22. Excluding stock gain (loss), the market gross refining margin fell from US$13.82/bbl in 6M/22 compared to US$3.86/bbl in 6M/23 due to a lower crack spread of main products from the fear of economic slowdown while the market was strong in prior year due to tight supply from Russia-Ukraine conflict.
2. Market Condition
Pricing | Q2/23 | Q1/23 | +/(-) | Q2/22 | +/(-) |
Dubai crude oil | 77.59 | 80.23 | -2.64 | 108.22 | -30.63 |
Light Naphtha (MOPJ) | 66.66 | 76.48 | -9.82 | 97.03 | -30.37 |
Gasoline (premium) | 94.13 | 98.94 | -4.81 | 143.36 | -49.23 |
Jet Fuel | 91.56 | 106.26 | -14.70 | 147.84 | -56.28 |
Diesel | 92.13 | 105.04 | -12.91 | 151.83 | -59.70 |
Fuel Oil | 69.01 | 64.22 | 4.79 | 104.67 | -35.66 |
Spread over Dubai | Q2/23 | Q1/23 | +/(-) | Q2/22 | +/(-) |
Light Naphtha (MOPJ) | -10.93 | -3.75 | -7.18 | -11.19 | 0.26 |
Gasoline (premium) | 16.54 | 18.71 | -2.17 | 35.14 | -18.60 |
Jet Fuel | 13.97 | 26.03 | -12.06 | 39.62 | -25.65 |
Diesel | 14.54 | 24.81 | -10.27 | 43.6 | -29.06 |
Fuel Oil | -8.58 | -16.01 | 7.43 | -3.55 | -5.03 |
Average Dubai price for Q2/23 was US$77.59/bbl decreased from US$80.23/bbl in Q1/23 despite OPEC+ production curtailment. Asian refining margins in the region fell to the lowest level since late-October and Asian refinery maintenance season added pressure to the Dubai price. In addition, global economic uncertainties, heightened by the US debt ceiling impasse, hurt consumer confidence amid lackluster manufacturing activity in several major locations. The high interest rates and high inflation continue to weigh on the economic outlook and oil demand.
Naphtha spread over Dubai in Q2/23 decreased to US$-10.93/bbl. The weakness in naphtha cracks was a result of tepid petrochemical demand in Q2/23. With propane-naphtha spread averaging under US$-70/t, steam cracker operators have turned to cheaper LPG feedstock. Aside from these, spot buying appetite has been weak given that offline cracker capacity peaks in May. On top of planned outages, the restart of several petrochemical plants have reportedly been delayed. In addition, influx of US olefins cargoes have resulted in negative olefins margins, which dealt a further blow to naphtha demand.
Gasoline spread over Dubai in Q2/23 decreased to US$16.54/bbl as a concern of higher export from China. The release of the second batch of Chinese export quotas and lower imports from Indonesia have weakened the gasoline cracks. Furthermore, the deferment of Vietnam's Dung Quat refinery turnaround to third quarter has also added more pressure to the cracks. On the other hand, rare imports by India due to supply disruption
3
Management's Discussion and Analysis of Financial Condition and Result of Operations
in the west coast of India and unplanned refinery outages in the US amid low inventory have limited the decline in cracks.
Jet crack spreads over Dubai decreased from the previous quarter to be US$13.97/bbl. Climbing stocks in US and ARA have narrowed the East-West differential, resulting in lower export demand outside of the region. Consequently, jet-diesel spread has flipped into discount, signaling the market has an ample supply of jet/kerosene. China's international flights in and out of the country have rebounded, albeit from a very low base of less than 10% of pre-pandemic levels in January to nearly 40% as of early May. The recovery in China's international air travel has recently stalled, with little increase in international flights. There are three major factors behind the recent slowdown in China's international air travel recovery: low seat occupancy rate reflects slow recovery in travel appetite, backlog in passport and visa applications, and closure of Russian airspace. Festive travel in Ramadan and recovering international aviation demand have limited the decline in the cracks.
Diesel crack spreads over Dubai decreased from the previous quarter to be US$14.54/bbl. Lower import requirement from Europe, a narrower East-West differential, higher Middle Eastern export volumes into Asia, lower imports from Indonesia and a flurry of spot cargo offers from several Asian refiners have weighed on cracks. However, supply disruption at the west coast of India, the delay of third CDU startup in Al-Zour refinery and unplanned refinery outages in the US amid low inventory have limited the decline in cracks.
Fuel oil spread over Dubai in Q2/23 increased from previous quarter to be US$-8.58/bbl. The HSFO crack remains supported owing to spring turnaround season, tight heavy feedstock supply due to lower medium- heavy crudes production from the OPEC+ production cuts, and steady bunker demand in Singapore. In addition, stockpiling for summer power generation in the Middle East adds further supported the crack.
SPRC's average market refining margin in Q2/23 was US$1.34/bbl, which is lower than US$6.36/bbl in Q1/23. In Q2/23, SPRC continued to optimize feedstocks by optimizing freight cost and continue processing Atmospheric residue. SPRC also continues maximizing asphalt production to minimize FO production which is a low value product.
4
Management's Discussion and Analysis of Financial Condition and Result of Operations
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
Star Petroleum Refining pcl published this content on 08 August 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 August 2023 11:44:37 UTC.
