Singapore Petroleum eyes upstream buys
SINGAPORE (Reuters) - Singapore Petroleum Co Ltd. (SPC) SPCS.SI is looking for acquisitions of up to $650 million to boost limited oil and gas assets, with a target to lift production to 150,000 barrels per day (bpd) to feed its refinery.
SPC could pay up to S$1 billion for a company with "good oil reserves" given its healthy cashflow, with the aim of increasing SPC's output from current levels of 2,600 bpd, said chairman Choo Chiau Beng. He did not give a timeframe for the target.
"Our top preference is acquisitions. You pay and you know the risks. When you explore, the risks are higher," Choo said in an interview at the Reuters Energy Summit. But these days, you have to pay top dollar for upstream assets."
He said SPC was looking at fellow countries in the Association of South East Asian Nations (ASEAN), as well as further afield in Australia, India and the Middle East, but declined to name any potential targets.
"There are many areas underexplored in the ASEAN region. Even Indonesia is not fully explored, as well as Myanmar and Cambodia," Choo said.
"There is a lot of sense for ASEAN neighbors to work closely together to grow business and production."
SPC has to date six exploration and production assets in Asia Pacific, including T06-3 in the Bass Basin in Australia, Block 101-100/04 Song Hong Basin in offshore Vietnam, Block B in offshore Cambodia, the Sampang PSC offshore East Java and the Kakap PSC in West Natuna Sea, Indonesia.
"The price of rigs, drilling pipelines, steel, metals and labor have all gone up -- oil companies are still making decent profits at today's prices," Choo added.
SPC's current gearing ratio is near zero, having fetched a net profit of S$112 million in the first quarter. Its shares closed unchanged at S$5.35, after rising to a high of S$5.45.
HOLD ON DOWNSTREAM
The company seemed less aggressive in growing its 285,000-bpd Singapore Refining Co. (SRC), a joint-venture between SPC and U.S. major Chevron Corp. (CVX.N), even though refining margins have held strong in the face of an expanding Asian sector.
"There are already a lot of refinery projects around the world and tightness in engineering contracts has caused projects to be delayed. And some projects may not even fly," Choo said.
"We're not looking at buying refineries... Downstream is more politically sensitive than upstream as it affects the consumers' pockets."
That said, SPC will move ahead in upgrading the Singapore refinery, which mainly exports products to China and Southeast Asia, to churn out a "greater quantity" of cleaner Euro-IV standard gasoline and diesel.
The upgrades for cleaner diesel will be completed by 2009. Asia has varying specifications for fuel, leading to trading opportunities between regions. Choo said this region may never have unified standards.
But developing economies meant underlying demand for fuel will stay on the uptrend and potentially counter analysts' forecasts for a refining margin downturn, he said.
"There is a second wind. There is a change in the structure of the economies of China, India, Vietnam and even the Middle East and Russia, which have astounded everybody."
(Additional reporting by Ovais Subhani)
