SMC’s $1.2B investment in Esso Malaysia ‘strategic’ for Petron

MANILA, Philippines—The planned $1.2 billion investment of conglomerate San Miguel Corp. in Esso Malaysia Bhd., a subsidiary of Exxon Mobil Corp., is expected to benefit local oil giant Petron Corp. in terms of “supply synergy.”

Petron president Eric O. Recto told reporters on Tuesday that the acquisition was significant in terms of securing crude supply. The supply synergy, according to Recto, will be evident when San Miguel starts buying crude for both the Philippine and Malaysian refineries.

“When we’re buying crude to feed two refineries, we are going to be a bigger purchaser of crude, and obviously that will mean stronger purchasing power,” Recto said. “That synergy can be enjoyed later on. But for now we are looking at upgrading the Malaysian refinery and expanding the service station network—a duplicate of what San Miguel did in Petron,” Recto noted.  However, he did not say if this could help lower prices of fuel in the Philippine market.

“I think the way to look at it, we see the potential in Malaysia and we want to develop that potential the way we saw the potential in Petron. Three years ago, we took over Petron and we’ve seen how successful we have been in turning the company around and we want to do the same in Malaysia,” he said.

About $1 billion will be used to upgrade the Malaysian refinery while the remaining $200 million will be used to increase the number of retail gas stations from the current 550.

According to Recto, San Miguel is looking at a combination of financing alternatives including some of its internally generated funds, borrowings and equity to finance the expansion.

“Well, we have offers from both Malaysian and international financial institutions. Malaysian banks will be more adept at providing financing for Malaysian opportunities, as Filipino banks will not be as competitive to providing ringgit financing,” Recto said.

“For now we are considering a number of financing structures. What I can tell you is that the availability of the funding is not a problem, as we have already gotten offers from quite a number of financial institutions. If we can, there will be an optimal financing structure that we’d eventually decide on,” he added.

Last month, San Miguel announced the acquisition of the downstream petroleum businesses of American multinational oil and gas company Exxon Mobil Corp. for about $600 million as it targets to expand its footprint in the regional oil industry.

Exxon, through subsidiary Esso Malaysia Berhad, has a refinery in Port Dickson that processes an average of 45,000 barrels of crude oil per day. It also manages a major portion of ExxonMobil’s network of 560 Esso and Mobil service stations in Malaysia.

ExxonMobil is the parent company of Esso and Mobil Malaysia and also owns a 65-percent stake in Esso Malaysia Bhd, which is listed on the Bursa Malaysia.