Pilipinas Shell strengthens financial position to weather COVID storm
Aug 13, 2020
Pilipinas Shell is making strategic choices to secure the long-term sustainability of its business and thrive in both the ongoing energy transition and the new normal created by the COVID-19 pandemic.
With the price of fuel products lower than or almost equal to the cost of refining crude oil, Pilipinas Shell is permanently shutting down its refinery operations in Tabangao and transforming the facility into a world-class full import terminal to optimize its asset portfolio and enhance its cost and supply chain competitiveness.
“We have the technical capability and financial flexibility to manage and adapt to disruptive conditions. 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,” says Shell President and CEO Cesar Romero.
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 and challenges in the global refining industry and the change to the new normal brought about by the COVID 19 pandemic. It also prepares the company for a future that will rely on more and cleaner energy solutions.
Pilipinas Shell is in fighting form as it goes deeper into the second half of the year, narrowing its quarter-on-quarter net loss from P5.5B in the first quarter to P1.2B in the second quarter, as crude oil and product prices slightly improved and stabilized during the second quarter. Net loss booked as of end of June totaled P6.7B.
Despite seeing volume and earnings recovery in the months of May and June, the company remains cautious given the spike of COVID-infected cases in the country and the consequent decision to place Metro Manila, Bulacan, Cavite, Laguna, and Rizal under modified enhanced community quarantine (MECQ) again.
To ensure the company remains financially resilient, and to preserve cash, the board of directors of Pilipinas Shell has decided to cancel dividend payouts for 2019 financial results.
“We are committed to make the right sustainable decisions now to protect our shareholders for the long-term,” says Romero.
It was a tough decision for Pilipinas Shell to suspend refinery operations last May 24. Throughout this period, Pilipinas Shell’s supply of quality fuels remained uninterrupted. “Pilipinas Shell has been consistently supplying quality fuels to its customers and the motoring public,” Romero says. The company’s access to the Shell global trading network ensures a continuous and reliable source of quality fuel products.
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 growing energy needs in the balance of the Visayas islands and the whole Mindanao region.
According to the Department of Energy, 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.
This is reflected in the company’s performance, as Shell ended the first half of 2020 with P6.7B net loss, compared to P3.7B income in the same period last year.
Inventory holding losses were substantial at P5.8 billion, as the price of crude oil plummeted from $67 per barrel at the end of December 2019 to $20 per barrel in April.
The non-fuels retailing business contributed 13 percent in gross margin, aided by partnerships forged with delivery companies to help transport non-fuels retail products to selected parts of the country. In the first half, five new Shell Select shops, 11 Shell Helix Oil Change (SHOC)+ and 14 co-locators were opened. Shell retail stations now total 1,129 nationwide.
Aviation fuels registered 43 percent decrease in volume in the first half of 2020 compared to the same period last year. Bitumen local volume decreased by 62 percent compared to previous year’s figures.
“The pandemic has definitely posed some challenges, but we have a strong balance sheet, retained earnings, and a reasonable gearing of 40 percent. We intend to maintain financial resilience,” says Romero.
To date, the company 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.
“Pilipinas Shell has been here for more than 100 years and we’re here for the long haul. Kasama niyo kami sa bawat biyahe ng buhay (we are with you in your life journeys),” he says. (end)
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