Bangchak doubles down on oil and gas
Firm maintains plan to buy Esso Thailand and develop LNG logistics
published : 25 Mar 2023 at 08:09
newspaper section: Business
writer: Yuthana Praiwan
The age of renewable energy, with electric vehicles (EVs) predicted to dominate the transport sector, has not swayed energy conglomerate Bangchak Corporation Plc from the oil and gas business.
Chaiwat Kovavisarach, chief executive and president of Bangchak, is pushing ahead with projects including biofuel for aircraft and liquefied natural gas (LNG) logistics, as well as the acquisition of Esso (Thailand) Plc to grow its oil refinery and retail businesses.
The company still needs approval from its shareholders before proceeding with the buyout.
At a press conference earlier this year, Mr Chaiwat said he was aware of the automotive industry's shift towards battery-powered cars, but he believes demand for oil will remain high for decades, leading the company to invest in an oil refinery.
Bangchak has some investments in clean energy and EV-related businesses, including a battery-swapping service for electric motorcycle taxi drivers, but the company continues to develop its core oil business as it believes the industry is still the backbone of economic activities.
Mr Chaiwat likened the Esso Thailand purchase to NASA's moonshot mission because it required years of careful preparation.
The acquisition was planned four years ago, before the outbreak of Covid-19.
The pandemic led to strict restrictions on air and land travel, along with other lockdown measures, to contain the spread of the virus. Global crude oil prices plummeted as demand for oil decreased sharply.
An oil price war between Russia and Saudi Arabia in April 2020 also sent global prices tumbling.
The oil industry looked volatile, but Bangchak continued with the asset acquisition plan.
In January 2023, the company announced a plan to acquire a 65.99% stake in Esso (Thailand) from ExxonMobil Asia Holdings Pte. The total value of the shares is estimated at 20.9 billion baht, or 9.18 baht per share, according to Bangchak's financial advisor Krungthai XSpring Securities.
The deal had a previous estimate of 8.84 baht per share, based on Esso Thailand's financial performance in the third quarter of 2022.
The new value of 9.18 baht per share is based on the company's financial statement ending on Dec 31 last year and the dividend payment announcement for its operating results for fiscal 2022 on March 13, said Krungthai XSpring Securities.
The total value of the shares is not the final purchase price of the transaction. The final purchase price will be calculated based on the latest audited or reviewed financial statements on the completion date.
Bangchak plans to launch a tender offer for the remaining 34.01% of ordinary shares held by other shareholders of Esso (Thailand) after the transaction is completed. The tender offer is pending approval of the acquisition by Bangchak's shareholders.
"We expect to push ahead with the share purchase deal once shareholders approve the plan in April," said Mr Chaiwat.
"The share purchase should be completed between August and September this year."
Bangchak believes the acquisition is appropriate to further expand its oil business in Thailand.
Its oil refinery capacity and number of petrol stations will significantly increase with the purchase, he said.
Bangchak's oil refinery capacity totals 120,000 barrels per day (BPD). With additional capacity of 174,000 BPD from Esso Thailand, total capacity will soar to 294,000 BPD, giving Bangchak the largest oil refinery capacity in the nation.
Bangchak filling stations will increase to 2,100 after the acquisition, up from 1,030 stations as of December last year.
Esso-run petrol stations will receive an upgrade and become new service facilities under Bangchak's brand within two years, said Mr Chaiwat.
The new investment will increase Bangchak's market share in the domestic oil trade to 21.8%, up from 10.8% at present.
These facilities not only ensure oil supply security, but they will also allow Bangchak to offer more comprehensive customer service through a greater number of service stations nationwide, he said.
The asset acquisition should also be good for Bangchak financially, said Mr Chaiwat.
He said he views the purchase price as "reasonable", although the company's debt-to-equity ratio will rise to 1.7 times, up from 0.6 times.
After the companies' businesses are synergised, Bangchak will annually save 1.5-2 billion baht in operating costs and expenses, said Mr Chaiwat.
Earnings before interest, taxes, depreciation and amortisation (Ebitda) are expected to soar to 100 billion baht by 2030, up from 37.8 billion in the first nine months of last year.
In terms of work culture, he does not envision problems combining the staff of the two firms. More than 2,000 Esso staff will work in the same positions and receive training to enhance skills and capabilities.
Cultural conflicts between the two companies should not occur because many executives working at Bangchak came from Esso, said Mr Chaiwat.
The purchase is part of plans to strengthen Bangchak, which wants to sell some of its non-energy assets and diversify into new businesses.
"Over the past decade, we have diversified into many businesses such as clean power generation, bio-based products, and oil and gas exploration and production. Last year, we also ventured into gas logistics," he said.
The company supplies LNG to factories located outside the service area of onshore gas pipeline networks.
Mr Chaiwat said the LNG transport service has potential because it offers gas as an alternative fuel to small and mid-sized factories that mainly use coal, fuel oil and diesel to produce heat during their manufacturing processes.
At present, only large power plants and factory operators are able to buy gas supplied through the pipelines.
Bangchak also plans to make biofuel for aircraft, known as sustainable aviation fuel, from used cooking oil through a joint venture with a 200-million-baht budget.
- renewable energy
- Chaiwat Kovavisarach