Oil Report

UPDATE 1-Manila's Petron plans $600-700 mln refinery upgrade

* Says plans to raise funding for refinery development

* Sets capital spending of $325 million this year

* Says expects to have returned to profit in 2009 (Adds comments from news conference)

MANILA, March 5 (Reuters) - Top Philippine oil refiner Petron Corp PCOR.PS plans to upgrade its refinery in the next four to five years, and will raise funding for the $600-$700 million project, the company president said on Friday.

Petron is setting aside 15 billion pesos ($325 million) for this year’s capital spending, mostly funded by the 10 billion pesos it raised from a just-concluded preferred share offer.

“Petron will be spending $600-$700 million for oil refinery expansion over the next 4-5 years”, Eric Recto, Petron president, told Reuters.

The company will be exploring all funding options, including overseas borrowings, he said, adding the project aims to boost the production of the so-called “white products” such as diesel, gasoline and kerosene. Petron’s existing refinery output of 180,000 barrels a day will not change.

“After this (expansion project) is done, we will be able to compete with the best refineries in the region,” Recto later told reporters at a news conference.

Recto said Petron returned to profitability in 2009 after the 3.98 billion pesos net loss it booked in 2008, mainly reflecting weak refining margins. But it remains cautious on its outlook for 2010 as refining margins have yet to improve, he said.

“I’m confident that the results for 2009 would have negated the fairly negative results of 2008,” he said.

Petron plans to use around 4 billion pesos of its spending budget this year to partly finance the construction of a 70-MW power plant servicing the requirements of its oil refinery in Bataan province northwest of the capital.

The power project will cost $210 million and would be completed in about two years, Recto said.

Petron was also looking at diversifying into non-fuel ventures such as financial services, either on its own or with a joint venture partner, Recto said.

Food-to-power conglomerate San Miguel Corp SMC.PS has an option to buy 50.1 percent of Petron. It controls unlisted mid-sized lender Bank of Commerce. ($1=46.06 pesos) (Reporting by Monicca Egoy; Editing by Rosemarie Francisco; Editing by Lincoln Feast)