Petron stays cautious amid strong 1st half

MANILA, Philippines — Petron Corp. is keeping a cautious stance on its outlook for the year despite a strong first half performance, taking into consideration global events that are affecting commodity prices.

“While there were clear benefits to the company during the first six months, these global events affecting commodity prices have also brought in very high level of volatility in the market,” Petron senior vice president and chief finance officer Emmanuel Erana said.

“We began to see opposing market sentiments in June and price correction started by July. So we will remain cautious for the rest of the year, hoping to balance between the opportunity to increase our crude run and protecting the company from a possible collapse in prices,” he said.

CreditSights, a unit of Fitch Group, in its latest report said Petron’s sales volumes are expected to continue to see steady growth considering restrictions are now largely relaxed and travel has reopened.

”Looking ahead, we expect Petron’s sales volumes to continue to grow steadily, considering a large majority of the country’s eligible population is fully vaccinated, which has enabled the government to ease social restrictions. This would encourage mobility across the country, boosted further by the recovery in tourism,” it said.

But since Petron bought expensive crude oil in the second quarter, and crude oil prices cooling off post June 30, CreditSights said Petron would have to sell refined fuels at its pumps at a comparatively lower rate, likely impacting the firm’s EBITDA margins on a quarter-on-quarter basis.

“Considering the company’s sales prices (prices of fuel sold at the pumps) are linked linearly to Dubai crude prices and are adjusted on a weekly basis, a drop in crude prices in the future could force Petron to sell fuel at cheaper rates, thereby shrinking its absolute revenues,” it said.

“On the other hand, its credit metrics typically remain elevated, its free cash flow generation poor, and capital structure skewed toward debt,” CreditSights said.

In the first half, the country’s largest oil company and only remaining refiner saw its consolidated net income double to P7.71 billion from P3.87 billion in the same period last year.

Consolidated revenues surged by 129 percent year-on-year to P398.52 billion, fueled by the sustained increase in sales volume and prices.

“The 60 percent increase in crude prices, plus the significant recovery of our volumes pushed the company’s sales revenues to more than double of last year,” Erana said.

“On the other hand, the Russia Ukraine conflict raised fuel product prices even more, resulting in significantly higher cracks during the second quarter of 2022,” he said.

Petron vice president and deputy chief finance officer Albert Sarte said the company plans to spend between P10 billion and P15 billion in capital expenditures on an annual basis over the next three years.

Philippines operations would get the lion’s share of the capex at around 70 percent, while Malaysia would receive the remaining 30 percent.

In terms of projects, the bulk of the investment or around P4 billion annually would be allocated for the service station expansion in both countries, while the rest will be utilized for logistical capability improvements, storage facilities expansion, pipeline projects and regular maintenance activities.