Shell raises 2019 capex to P6B, begins Tabangao project

Pilipinas Shell Petroleum Corp. has started a P2-billion project that will allow its Tabangao refinery in Batangas to process lower-grade crude oil.

This jacks up by half Shell’s yearly capital expenditure kitty of about P4 billion to P6 billion in 2019.

“We are basically installing a hydrogen manufacturing unit, because the availability of more hydrogen will allow us to process more exotic crude [oil],” Pilipinas Shell president and chief executive Cesar Romero said in a press briefing.

This means the Philippines will be host to one of Shell’s few hydrogen stations worldwide, five of which are in Germany.

“It will be a standalone hydrogen manufacturing facility within the refinery, with feedstock (raw material) coming from one of the processing units as well,” Romero said.

The hydrogen production unit will allow Shell’s refinery to produce more types of products from a wider range of crude oil quality.

Romero said the hydrogen unit was expected to undergo commissioning in the fourth quarter of 2020 and to operate commercially in the first quarter of 2021.

Also, in 2019 as in previous years, Shell will continue to spend P2 billion for its retail network (fuel stations), P1 billion for supply chain (bulk terminals), and P1 billion for refinery upkeep.

In 2018, Shell’s return on average capital employed was pegged at 15 percent, which Romero said demonstrated the company’s ability to efficiently use capital to generate competitive returns.

Also, Pilipinas Shell declared cash dividends of P3 a share, totaling at P4.8 billion or 95 percent of its audited net income for 2018.

Romero said this exceeds the company’s commitment to maintain a dividend payout of at least 75 percent. This is also the highest payout ratio for Pilipinas Shell since its initial public offering in 2016.

“We generated P14.1 billion cash from operations last year, which allows us to not only cover our dividend payments, but also to fund P6 billion worth of capital expenditure this year,” Romero said.

In 2018, Pilipinas Shell chalked up a net income of P5.1 billion, which was just about half of the P10.4 billion recorded in 2017.

The company said that while its refinery business recorded the best performance in five years, its contribution to the integrated business was dampened by the sudden drop in crude prices in the fourth quarter of 2018 as well as depressed refining margins.