Industry

Shell Forced to Permanently Shut Down Refinery Operations in the Country Due to COVID-19

The 60-year-old facility will be transformed into an import terminal.
IMAGE Pilipinas Shell Corporation
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Pilipinas Shell Petroleum Corporation is shutting down its refinery operations in its Tabangao facility in Batangas largely due to the coronavirus pandemic that has yet to show signs of abating in the country. 

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Instead, the facility will be transformed into a “world-class full import terminal” that the company says would optimize its asset portfolio and enhane its cost and supply chain competitiveness.

“We have the technical capability and financial flexibility to manage and adapt to disruptive conditions,” said President and Chief Executive Officer Cesar Romero in a report to the Philippine Stock Exchange.“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.”

Pilipinas Shell, which is listed in the PSE, halted operations of the refinery last May 24 to save cash as it grappled with reduced demand due to strict lockdown protocols mandated by the government. While it said then that the suspension of operations would last only one month, it extended the shutdown in June. 

According to the company, “the shift in supply chain strategy from manufacturing to full import terminal is a move that will further strengthen Pilipinas Shell’s financial resilience amidst the significant changes in the global refining industry and the change to the new normal brought about by the Covid-19 pandemic.”

Pilipinas Shell reported that it had been hit with a P5.5 billion net loss during the first quarter of the year but narrowed it to P1.2 billion loss in the second quarter as as crude oil and product prices improved and stabilized slightly. That takes total net losses for the first half of 2020 up to a staggering P6.7 billion. 

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Demand for petroleum products declined by 20 to 30 percent in March, and by as much as 60 to 70 percent in April during the imposition of the enhanced community quarantine compared to February 2020 levels, according to the Department of Energy.

Despite seeing volume and earnings recovery in May and June, Pilipinas Shell said it remains cautious given the spike of COVID-infected cases in the country and the consequent decision to place Metro Manila, and surrounding provinces back to modified enhanced community quarantine (MECQ).

The company also said that the refinery shutdown will not have any effect on supply and ensured that fuels and other products will remain uninterrupted.

Constructed in 1960, the Tabangao refinery facility produces 110,000 barrels of oil per day (b/d). It is one of only two oil refineries in the country. The other is in Bataan owned by Petron. Pilipinas Shell said the Tabangao facility will continue to cater to the fuel needs of Luzon and Northern Visayas, while the North Mindanao Import Facility (NMIF) in Cagayan de Oro will serve the energy needs in the balance of the Visayas islands and Mindanao. 

“The pandemic has definitely posed some challenges, but we have a strong balance sheet, retained earnings, and a reasonable gearing of 40 percent.,” Romero said. “We intend to maintain financial resilience. To date, the Corporation has been making headway in its cash preservation efforts to deliver sustainable cash flow, achieving a total of P1.3 billion (P800 million in operating expenditures and P500 million in capital expenditures) against the P2 billion savings target for 2020.

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“Pilipinas Shell has been here for more than 100 years and we’re here for the long haul,” he added. “Kasama niyo kami sa bawat biyahe ng buhay (we are with you in your life journeys).”

The company has also announced that, to ensure it remains financially resilient and to preserve cash, it has also decided to cancel 2020 dividend payouts for its 2019 financial results.

“We are committed to make the right sustainable decisions now to protect our shareholders for the long-term,” Romero said.

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Paul John Caña
Associate Editor, Esquire Philippines
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