Demand crash prompts Pilipinas Shell to shutter Batangas refinery
Photo Credit: Shell Official Website
Pilipinas Shell Corp. announced on Thursday that it is permanently shutting down its refinery operations in Tabangao, Batangas as demand for oil plummeted after the government implemented lockdown restrictions to contain the spread of COVID-19.
Shell suspended the operations of the Tabangao refinery last May 24. In its disclosure to the Philippine Stock Exchange, the company said the permanent closure of the refinery is just one of the strategies it has drawn up to ensure the sustainability of its business amid the COVID-19 pandemic.
The company noted that the crash in oil demand caused the price of fuel products to decline to a level that is lower than or almost equal to the cost of refining crude oil.
“We have the technical capability and financial flexibility to manage and adapt to disruptive conditions. Due to the impact of the COVID-19 pandemic on the global, regional and local economies, and the oil supply-demand imbalance in the region, it is no longer economically viable for us to run the refinery,” President and Chief Executive Officer Cesar Romero said.
Shell said the Tabangao facility, which started commercial operations in 1962, will be transformed into a full import terminal to optimize its asset portfolio and make the business competitive.
Apart from shuttering the facility, Shell said its Board of Directors has decided to cancel the 2020 dividend payouts for 2019 to preserve cash and ensure that the company remains financially resilient.
"Despite seeing volume and earnings recovery in the months of May and June, the Corporation remains cautious given the spike of COVID-infected cases in the country and the consequent decision to place Metro Manila, Bulacan, Cavite, Laguna, and Rizal under modified enhanced community quarantine (MECQ) again," the Shell disclosure read.
The company assured, however, that it is "in fighting form" as it goes deeper into the second half of the year, narrowing its quarter-on-quarter net loss from P5.5 billion in the first quarter to P1.2 billion in the second quarter, as crude oil and product prices slightly improved and stabilized during the second quarter. Net loss booked from January to June reached P6.7 billion.
Citing data from the Department of Energy, Shell said the demand for petroleum products declined by 20% to 30% in March, and by as much as 60% to 70% in April during the imposition of the enhanced community quarantine, compared to February levels.
"This is reflected in the Corporation’s performance, as the Corporation ended the first half of 2020 with P6.7 billion net loss, compared to P3.7 billion income in the same period last year," it said.
Inventory holding losses were substantial at P5.8 billion, as the price of crude oil plummeted from $67 per barrel at the end of December 2019 to $20 per barrel in April.
Shell said its non-fuels retailing business contributed 13 percent in gross margin, aided by partnerships forged with delivery companies to help transport non-fuels retail products to selected parts of the country.
"In the first half, five new Shell Select shops, 11 Shell Helix Oil Change (SHOC)+ and 14 co-locators were opened. Shell retail stations now total 1,129 nationwide," the disclosure read.
Shell suspended the operations of the Tabangao refinery last May 24. In its disclosure to the Philippine Stock Exchange, the company said the permanent closure of the refinery is just one of the strategies it has drawn up to ensure the sustainability of its business amid the COVID-19 pandemic.
The company noted that the crash in oil demand caused the price of fuel products to decline to a level that is lower than or almost equal to the cost of refining crude oil.
“We have the technical capability and financial flexibility to manage and adapt to disruptive conditions. Due to the impact of the COVID-19 pandemic on the global, regional and local economies, and the oil supply-demand imbalance in the region, it is no longer economically viable for us to run the refinery,” President and Chief Executive Officer Cesar Romero said.
Shell said the Tabangao facility, which started commercial operations in 1962, will be transformed into a full import terminal to optimize its asset portfolio and make the business competitive.
Apart from shuttering the facility, Shell said its Board of Directors has decided to cancel the 2020 dividend payouts for 2019 to preserve cash and ensure that the company remains financially resilient.
"Despite seeing volume and earnings recovery in the months of May and June, the Corporation remains cautious given the spike of COVID-infected cases in the country and the consequent decision to place Metro Manila, Bulacan, Cavite, Laguna, and Rizal under modified enhanced community quarantine (MECQ) again," the Shell disclosure read.
The company assured, however, that it is "in fighting form" as it goes deeper into the second half of the year, narrowing its quarter-on-quarter net loss from P5.5 billion in the first quarter to P1.2 billion in the second quarter, as crude oil and product prices slightly improved and stabilized during the second quarter. Net loss booked from January to June reached P6.7 billion.
Citing data from the Department of Energy, Shell said the demand for petroleum products declined by 20% to 30% in March, and by as much as 60% to 70% in April during the imposition of the enhanced community quarantine, compared to February levels.
"This is reflected in the Corporation’s performance, as the Corporation ended the first half of 2020 with P6.7 billion net loss, compared to P3.7 billion income in the same period last year," it said.
Inventory holding losses were substantial at P5.8 billion, as the price of crude oil plummeted from $67 per barrel at the end of December 2019 to $20 per barrel in April.
Shell said its non-fuels retailing business contributed 13 percent in gross margin, aided by partnerships forged with delivery companies to help transport non-fuels retail products to selected parts of the country.
"In the first half, five new Shell Select shops, 11 Shell Helix Oil Change (SHOC)+ and 14 co-locators were opened. Shell retail stations now total 1,129 nationwide," the disclosure read.
