The "stable" outlook embeds the strong linkage between ESSO and the ExxonMobil Group, together with anticipated benefits it receives from the Group, particularly financial supports, which will help ESSO weather the high volatility of petroleum and petrochemical industries. The company is also expected to maintain its sound market positions in the petroleum business in Thailand. Over the next one to two years, the chance of a rating upgrade is limited due to the volatility of oil prices plus the oversupply of paraxylene (PX). However, ESSO's rating could be downgraded if the company fails to secure ongoing supports from the ExxonMobil Group, or if the ExxonMobil Group dilutes its majority stake in ESSO, or its financial profile could not recover as expected over the next three years.
ESSO is Thailand-based affiliate of Exxon Mobil Corporation (ExxonMobil), which is one of the world's largest oil refiners and petrochemical companies. ESSO has a long track record in the petroleum business in Thailand. The company and its affiliates began the oil business in Thailand in 1894 and opened refinery in 1971. As of March 2015, ESSO's major shareholders comprised ExxonMobil Asia Holding Pte. Ltd. (66%) and Vayupak Fund 1 (7%).
ESSO's business profile is very strong. The company's core operations comprise two business segments, which are oil refining and marketing segment and petrochemical segment. In the oil refining and marketing segment, ESSO owns a complex oil refinery, and it operates retail services stations. The company operates one of the 24 refineries run by ExxonMobil affiliates worldwide. ESSO also manufactures and distributes petrochemical products, primarily aromatics.
The rating is reflective of the ESSO's numerous strong linkage with the ExxonMobil Group, including commercial, operational, financial, and reputational aspects. As an affiliate of ExxonMobil, ESSO benefits from carrying out the group's advanced refinery technology and expertise, as well as operational and engineering services. Moreover, ESSO is able to leverage ExxonMobil's global network of crude oil procurement and finished products distribution. The company distributes its refined products, under the Esso brand, through ESSO's network to commercial and retail customers. Further, ESSO obtains financial supports from the Group, which help enhance financial flexibility.
The rating also incorporates ESSO's efficient and integrated refinery and aromatics plant. ESSO operates a complex refinery with a maximum rated capacity of 174 thousand barrels per day (KBD), accounting for approximately 16% of the total refinery capacity in Thailand. ESSO also operates an aromatics plant, which is integrated with its refinery. The aromatics plant has a production capacity of 500 thousand tonnes per annum (KTA) of PX. ESSO benefits from the integration of the refinery and the aromatics plant, which gives the company the flexibility to adjust the product mix of petroleum and petrochemical products. In 2014, ESSO's refinery product mix was diesel (37.7%), gasoline (19.3%), reformate (13.5%), fuel oil (9.7%), jet fuel (9.1%), and others (10.7%). With ExxonMobil's technology and operating philosophy, ESSO's refinery is in the top tier of energy efficient plants in the Asia-Pacific region, with high operational reliability.
The rating of ESSO also recognizes the company's strong position in retail marketing, backed by recognizable brand name, extensive distribution network, and operational efficiency of service stations as measured by sales volume per station. ESSO's strong market position is underpinned by its recognizable brand name, which enables the company to market premium oil and related products. Further, ESSO has extensive distribution network of service stations. As of September 2015, there were 526 service stations operating under the "Esso" brand name. For the first nine months of 2015, ESSO's network of service stations was the third-largest retailer in terms of fuel sold through service stations. In addition, ESSO's service stations are capable of generating relatively high volume per station compared with most of its peers. ESSO's strong retail helps ease the adverse impact from the oil cyclicality.
On the contrary, the rating is constrained by the high volatility inherent in the petroleum and petrochemical industries. Oil prices have largely tumbled since the second half of 2014 in the face of weakdemand and a record supply surplus. Like other industry-wide oil refiners and producers, ESSO is susceptible to headwinds of highly volatile oil prices, which could hurt profitability and cause unsteady gross refining margin (GRM). The rating is also tempered by a stiff competition in retail business. Although lower retail oil prices have heightened demand and raised consumptions, fierce competition in retail is undergoing on account of increasing number of service stations by operators.
ESSO's oil refining and marketing segment accounts for the majority of its revenue. About 90% of ESSO's revenue stemmed from the oil refining and marketing segment and about 10% from the petrochemical segment. The collapsing oil prices, starting in the second half of 2014 and continuing through the first nine months of 2015, undermined ESSO's financial profile, as did the continued oversupply of PX. In 2014, the company's revenue totaled Bt220,735 million, dropping by 10% compared with revenue in 2013. ESSO incurred a hefty loss of Bt10,346 million in 2014. For the first nine months of 2015, lower oil prices caused the company's revenue to decline to Bt130,164 million, down by 26% year-on-year (y-o-y). The company's profitability, however, improved for the first nine months of 2015 as the oil prices were less volatile and the spread between refined product prices and crude oil prices widened compared with 2014. The company recorded an operating profit of Bt1,758 million for the first nine months of 2015, well ahead of operating loss of Bt4,536 million for the first nine months of 2014. The improvement was mainly from the oil refining and marketing segment. The oil refining and marketing segment recorded an operating profit of Bt4,089 million. The petrochemical segment is still suffering from an oversupply of PX, posting an operating loss of Bt2,231 million for the first nine months of 2015.
As of September 2015, the company's total debt stood at Bt33,102 million. About 60% of the total debt was granted by the ExxonMobil Group, up from about 0.5% at the end of 2011. The financial support helped enhance ESSO's financial flexibility. On top of the outstanding inter-company debt, the ExxonMobil Group also provides credit facility of Bt54,000 million to ESSO, which currently remains undrawn. This facility will expire in 2016 but will be renewable for another three years. As of September 2015, ESSO's debt to capitalization ratio was 71.5%. This ratio is expected to gradually improve to 65%-70% over the next three years, assuming no further significant drops in crude oil prices and no sizable investments. The company's EBITDA (earnings before interest, tax, depreciation and amortization) is expected to stay above Bt4,000 million per annum on average during 2016-2018, while the capital expenditures are expected at about Bt1,000-Bt1,300 million per annum. TRIS Rating is of the view that ESSO's debt serviceability is still consistent with its rating category due to the strong supports it receives from the ExxonMobil Group.
Esso (Thailand) PLC (ESSO)
Company Rating: A+
Rating Outlook: Stable