REFINERY & TRADING
What is the Refining Margin?
The Refining Margin is the revenue of the producer or the refinery. It is ascertain from the difference between the averaged Ex-Refinery Prices of every product in respect to their yield ratio, and the crude oil cost (Ex-Refinery Prices refers to wholesales price of products excluding taxes and various fund levies). The aforementioned Refining Margin is the Gross Refining Margin. As for the refining margin of each petroleum products, they would be assessed from the Gross Refining Margin that has been segregated into each product’s individual refining margin in accordance with their yield proportion and their respective Ex-Refinery Price during each period.
What is the Refinery Transfer Price?
The Refinery Transfer Price is defined as the price that refineries offers product to oil wholesalers, it encompasses production cost, with the addition of Excise Tax, Municipal Tax, and Value Added Tax. Furthermore, various government fund levies are also included, i.e. the Oil Fund, the Energy Conservation Promotion Fund. Therefore the Refinery Transfer Price = production cost + various taxes + various fund levies.
What are the methods in which BCP utilize to transport crude oil to its refinery?
Crude oil is transported into the refinery with 3 main methods of transportation utilizing, oil trucks trains, and seafaring oil tankers. Domestic sources utilize the 3 mentioned methods. Whereas imported crude oil is brought in via oil tankers to be discharged at the Sri Racha depot, which the company has leased to store crude oil, to which said crude oil is transported to the BCP refinery Chao Phraya river jetties with the use of smaller oil tankers.
What is the 3E project?
The 3E project or the Efficiency, Energy, and Environment Improvement Project is set to increase the efficiency and capacity of Bangchak refinery, the project comprises of these three following components:
- Co-Gen Power Plant with a 12 MW capacity, dedicated to stabilizing the refinery’s electrical system, acting as replacement for the boiler which was the refinery’s previous source of electricity. As well as serving to lower the refinery’s dependency on electricity from the Metropolitan Electric Authority, through the use of cutting edge technology and employs Natural Gas as production fuel, which is environmental friendly. This project was completed in 2017.
- Installation of the Continuous Catalyst Regeneration Unit (CCR) is the installation of a production unit that will increase the octane of Benzene products which can run constantly, replacing the previous unit. Of which would be beneficial to production efficiency, yielding large portions of high octane Benzene (Reformate yield) increases compared to the previous unit’s yield, and power consumption will also decline. The installation was completed in the 4th quarter of 2020.
- Hydrocracking Unit (HCU) Revamping boosts refining capabilities, leading to more flexibility, expanding production capacity to continuously run at 120 KBD, increasing the proportion of high-value products. The revamping was completed in the 1st quarter of 2020.
Since Bangchak refinery is located within the vicinity of a city, what measures have the company taken to protect the environment and ensure safety?
BCP has a system in place to manage environmental and safety concerns which adheres to ISO14001/ISO50001 and OHSAS18001, respectively. BCP operates with utmost consideration for safety and environmental implications. The company has measures in place to oversee detrimental risks associated with the refinery e.g. strictly adhering to related laws, assessing risks and initiate risk minimizing measures for every operation procedures, maintaining production equipment according to schedule, and hold drills for related personnel to nurture expertise in handling emergency situations, to name a few. This also extends to examining and monitoring the environment, and disclosing information pertaining to the quality of the environment to the public through the screen emplaced in front of the refinery and within communities.
Furthermore, in order to prosper with nearby communities, and being beneficial to society, the company hosts continuous community-relation events e.g. annual assessment of the community demands and its relationship the company, provide community liaison officers to fraternize with the members of the community on location, hold seminars with local community committees/ confer with the educational institution committee/ joint meeting with agricultural cooperative committees. As well as having multichannel communication to receive complaints, via both a hotline and public relation boards.
Why must the oil price in Thailand reference the finished product price quoted in Singapore?
Due to Singapore being the epicenter of oil trading in the Far East. The price in Singapore is calculated from the agreement to buy and sell between buyers and sellers, both domestic and international. It is believe to be able to reflect the volume and demand of oil within the region accurately. Exports and imports (excess production quantity and demand for oil) between different countries within the region affects the change in price of the Singapore market. The amount of finished product that is bought and sold through the Singapore market will remain high, similar to other major markets; making it difficult for price manipulation between buyers and sellers to occur.
How does the volatile nature of oil price in the global market affect the company?
Oil price volatility directly affects businesses that are related oil e.g. the refinery, and marketing business.
As for the refinery, under circumstances where oil price adjusted up, this turn of event would affect the price of the oil stock, leading to the booking of increase in profit from inventory gain in the company financial statement. On the contrary, if the oil price adjusted downwards, the opposite effect (or the inventory loss) will be booked. However, actual performance of the refinery depends more on the spread between crude oil and finished product.
In terms of the marketing business, if the price were to adjust downward, this has positive effects; service station prices generally adjust slower than the declining cost, thus leading to more positive inclination of the marketing margin, so forth.
What is BCP’s policy on the crude oil and finished product spread hedging?
The company’s policy in regards to crude oil and finished product spread hedging is to secure a hedge position of 30 percent of the total production amount. However, increasing and decreasing the hedging position depends on conducive market conditions. Such variations in position must receive an approval from a governing committee that has the company’s chief executive officer sitting as committee chair, and the meetings are constantly being held to decide upon the risk hedging positions for the company to take. As well as, to closely track the result of each executed hedging position.
Does Bangchak refinery change its crude mix when the prices of Middle east crude slump?
The cheaper Middle east crude prices create opportunities for Bangchak to source crude at the lower cost. However, the optimal crude sourcing process takes the proportion and quality of refined products into account. In this regard, Bangchak refinery employs Linear Programming software to select the most suitable crude mix for us. Middle east crudes are also considered when they yield better gross refining margin (GRM) than crude from the other regions.
How would Bangchak refinery deal with the drought?
BCP refinery implemented water conservation and drought response plans, including the wastewater treatment system as parts of the company’s sustainability plan. Our production units have never experienced water shortage, but water quality occasionally which can be indicated by the Metropolitan Waterworks Authority’s application. Bangchak has a reserve water source that can be used if the water supply is insufficient or the quality is lower.
Should the government sector announces its policy to standardize EURO5 compliance, what contingency plan has the BCP refinery prepared?
Currently, the BCP refinery is capable of producing Gasoline Base complying with the Euro 5 standards; however, the ability to produce Euro5 - Diesel products can be partially fulfilled from the Hydrocracking Unit. To produce the full range Euro 5 Diesel, the refinery would have to invest in augmenting the Kerosene Treating Unit and the Gasoil Hydrodesulfurization Unit. It has been estimated that it would take 4 to 5 years to design and construct the unit; assessed to be able to comply with the government’s request for cooperation, estimated to be completed by 2023.
What is the Marketing Margin?
It is the difference between the retail price at a service station and the refinery transfer price. It denotes the gross profit of the wholesaler and the service station. As such, the marketing margin is under constant flux coinciding with the market price of oil in the global market. ธhe marketing margin exhibit gross profit of the wholesaler and the service station, and does not include other costs and various management expenses undertaken by the service station, thus the marketing margin is not the wholesalers’ net profit, but a gross profit not excluding other expenses except the fuel cost.
How is the Retail Price calculated?
It is the sum of the following, refinery transfer price + excise tax + municipal tax + oil fund + energy conservation promotion fund + VAT + marketing margin + VAT = retail price at service station (further information on the standard retail price of oil can be found on the website of the Energy Policy and Planning Office, Ministry of Energy)
Under conditions where renewable energy usage is promoted, has Bangchak got products or research prepared for such an occasion?
The company pioneered the use of renewable energy, it had been the first to introduced the Gasohol 95 product to the domestic market in 2003. The company has always emphasize the expansion and advocating sales of renewable energy consistently, as well as researching and debuting new products. Currently, the company has been distributing Green S Series products in the Gasohol and B20S categories, in order to increase the efficiency and raise the overall quality of fuel for the Thai public to use; environmentally friendly (further information can be found on http://greens-revolution.bangchakmarketplace.com/ and www.bangchak-greens.com)
What are the Bangchak E20S and E85S?
The Bangchak E20S is a result of the combination between Unleaded Benzene fuel, and ethanol or ethyl alcohol which is 99.5% pure alcohol (produced from agriculture produce e.g. sugar cane, and cassava, to name a few), in a mixture of 80 parts Benzene: 20 parts ethanol to become the E20S octane 95 product that complies with the Ministry of Energy standards, applicable with engines designed for E20S usage.
As for the Bangchak E85S, the mixture is achieved by increasing Ethanol proportion to Benzene, with 15 parts Benzene: 85 parts Ethanol, resulting in the Bangchak E85S with the product’s octane exceeding 100.
Currently, how many service stations does BCP have?
As of the end of December 2020, the company has a total of 1,233 service stations, of which are 619 standard size service stations, and 614 community size (cooperative) service stations.
What is the community service station project?
The community service station, is a concept that aims to create opportunities for income distribution to farmers in rural areas, community groups, and cooperatives. Allowing them to become owners of service stations and operated by representatives of the community. They would be given the chance to use quality fuel at fair price. Aside from lending a hand to society, it is a way to distribute income into communities, it is also a channel that the company strategically employs to expand its retail market, due to these farmers already having demand for fuel. Furthermore, it instills high degrees of Brand Loyalty in the Bangchak brand due to members of the cooperatives would only use fuel from cooperative service station that they own.
How does the standard service station differ from the community service station (cooperative station)?
As for the difference between the 2 types, it is mainly about ownership and management by different individual groups, that is
- Community service stations (cooperative service stations): is owned by a coop or a community, whom have directly invested and operates the establishment themselves.
- Standard service stations: will be operated by either the company itself or dealers, depending on the investment type on each location.
As for the product offerings, they are generally identical, there may be variations in the number of products sold in some areas which depends on customer oil usage in the vicinity.
What is a Self-Serve service station?
These are Bangchak service stations where customers can fill up gas themselves. Through the use of computers governing dispensation correlating to the requested volume equivalent to the money paid. The system will halt the flow of fuel automatically when the money equivalent has been filled, the system is of international standards utilized abroad in places such as the US, Europe, Australia, New Zealand to name a few. The retail price at these stations are cheaper than normal locations, acting as an alternative for consumers.
What is the EURO standard?
The EURO standards or the European Emission Standards is a set of criterion regulating pollution emission for vehicles sold in the EU beginning from EURO 1 until 2005 when the EURO 4 standard was enforced. For vehicles to be able to emit pollutants complying with the EURO 4 standards, it requires a development cooperation between two sides, automotive technology and the refinement of fuel quality. Thailand enforced the Euro 4 standards since January 1stsup>, 2012, however, BCP has produced and sold the EURO 4 standards fuel prior to the date (Euro 4 Diesel has been sold since 2008, 4 years before implementation, as for Benzene and Gasohol adhering to EURO 4 standards, they debuted in 2011) for Thais to use quality fuel that is environmentally friendly that is compatible with both old and new Diesel engines.
Currently, what other countries uses the EURO 4 standards?
Every country in the European continent, New Zealand, Japan, Hong Kong, Singapore, South Korea, and Taiwan, to name a few.
What is the Bangchak E20S Euro 5?
Bangchak developed the new alternative Gasohol E20S fuel that corresponds to the EURO 5 standards, considered to be the first in Asia. It significantly helps lower pollutants from combustion, as well as, boosting engine performance with the Supertech additive that helps cleanse, allowing for a more complete combustion; saving fuel by 3% and reduces friction to increase engine power by 6%.
Does Bangchak sell NGV gas?
Bangchak has collaborated with PTT to sell NGV gas to promote the use of renewable fuel. PTT will be investing in all related equipment in the perimeter of Bangchak service stations, and the company will benefit from the amount of NGV gas sold.
GREEN POWER PLANT
How has the company invested in the green power plant business?
The company invested in the Green Power Plant business through a subsidiary which is BCPG PLC which is listed in the Stock Exchange of Thailand. As of December 2020, it has a total capacity of 474 MWppa across Thailand, Lao PDR, Japan, Indonesia and the Philippines, which can be categorized by type into
- Solar Power Plant, 178 MWppa
- Hydropower Plant, 114 MWppa
- Geothermal Energy Power Plant, 158 MWppa
- Wind Power Plant, 23 MWppa
Information on this business can be found on www.bcpggroup.com
What reason has made the company interested in the Biodiesel business?
- It generates revenue and increases the value of the enterprise, and the company is able to utilize the land at Bang Pa-in to reap financial benefits.
- Promotes the image of a leader in renewable energy, able to expand the Biodiesel market with confidence that there will be enough volume of standard Biodiesel to be consistently sold.
- Increase the company’s market share, due to the government sector’s support for Biodiesel products; in terms of promotion and incentivizing price structure.
- A form of support for government policy to promote production and usage of Biodiesel to replace traditional diesel, in order to maintain energy security, generates income for farmers, and helps reduce air pollution; increasing the quality of life for the populace.
- Furthermore, the said Biodiesel manufacturing plant can be support research in collaboration with education institution or government agency in order to develop Thai commercial Biodiesel manufacturing technology for the future.
What reason has made the company interested in the Ethanol business?
The Ethanol production business compliments the company’s core business. The company has plans to focus on renewable energies and become more environmentally friendly, furthermore, using it as a base to expand to future downstream businesses. The company estimates that said project will return a generous yield on investment. As such, investing in renewable energy is considered as adding value to the enterprise and diversifies revenue risk which at the same time responds to government policy that endorses Thailand as a center for the production and export of Ethanol in the region.
How has the company invested in the Bio-based product business?
Currently, the company has invested in the Bio-based Product business through subsidiaries, which are BBGI PLC, which as of March 2019, Biodiesel production is 1 million liters per year and Ethanol production is 0.6 million liters per year. Information on this business can be found of www.bbgigroup.com
How has the company invested in the petroleum exploration and production business?
After Bangchak had established BCPR Co., Ltd., this latter company set up BCPR Pte. Ltd., a subsidiary in Singapore, to co-invest with the Seacrest Capital Group in Draugen and Gjøa petroleum field in Norway, through share purchase in OKEA ASA, a Norwegian company engaging in the petroleum development business in Norway. The investment was made as a joint partnership in a world-class asset with long-lasting production life. The fields produce light crude of high price, suitable for Bangchak’s refining and production processes. The investment is considered part of risk diversification in line with the corporate strategy. Overall, currently, OKEA is considered as an associated company which Bangchak would realize profit from, proportionally to the amount of shares the company held at the end of accounting periods.
Information on this business can be found on www.okea.no
Why has the company invested in the Petroleum Exploration and Production business during periods of volatile oil price?
Investments in the Petroleum Exploration and Production business coincides with the company’s business strategy to invest in Natural Resources business; to invest in World Class Asset petroleum field that has long term production life span and is a Joint Partnership investment, which is essential to the expansion of the Natural Resources business and is a method of diversifying risk.
Even though, currently, the circumstance of the oil price may be retracting, however, the asset the company has invested in is a World Class Asset with low cash cost. It produces Light crude oil of which its price refers to Brent crude price. It is reckoned that the company would benefit from rising Brent price which is expected to rise significantly after the IMO 2020 regulation goes into effect.
When did Bangchak Corporation PLC started operating its business?
The company commenced business since the 1st of April, 1985, registered as a public company on the 23rd of April, 1993, and has registered its common stock in the stock exchange of Thailand on the 2nd of August, 1994. The company has grown and expanded businesses continuously for 35 years.
Who are the major shareholders of BCP? Also, which company has BCP invested in?
How do the different businesses of the Bangchak group correspond to one another?
The company operates various businesses that is located in a supply chain. Beginning upstream is the petroleum exploration and production business that produces crude oil to be sold in markets. The crude produce is of the Light variant, which fetches higher prices than Dubai crude. It is considered as an extension to the natural resource business, and diversifies risk, coinciding with company strategy. Moreover, for the downstream petroleum business, Bangchak’s core businesses are the complex refinery business group which refines crude oil into finished products, and the marketing business that acts as a distribution channel; delivering finished products to consumer. The concurrent operation of the refinery business and the marketing business is beneficial in the better management of supply chains and profitability. On the other hand, the company also has bio-based business such as the Biodiesel B100 production business and the Ethanol production business; acting as complimentary businesses. Said products are blended with petroleum products giving rise to finished Biodiesel and Gasohol to be subsequently distributed through the marketing business.
Due to the petroleum business exhibiting high volatility in terms of price, the company has expanded its investment to the green power plant business under the supervision of BCPG PLC, which is a business that generates steady cash flow; alleviating the turbulence of the group’s performance.
What is the BIIC?
Bangchak established Bangchak Initiative and Innovation Center (BiiC) to create a Green Ecosystem to drive innovation with a focus on green energy and bio-based businesses. Research and development (R&D), together with technological and network management, help encourage business expansion (both domestic and abroad) in parallel with the incubation of startups under the Thailand 4.0 economy. Its ultimate goal is to join the Evolving Greenovation Group in Asia.
In 2018 BiiC carried out the Green Community Energy Management System project (GEMS), which involves the generation of green energy at service stations. Electricity produced at a station is bought and sold through the bidding method between buildings and shops on the premises of Bangchak’s Srinakarin Road service station in Samut Prakan. It is the first experimental site for this new method of power sale and purchase. The roofs of the station as well as the parking area and SPAR building are installed with solar panels to generate 249 kilowatts of electricity. The system is also fitted with an energy storage system or a 1-MW lithium-ion battery.
In response to the expansion of startups in Thailand, Bangchak set up four new companies, namely BCV Bio Based Co., Ltd., BCV Energy Co., Ltd., BCV Innovation Co., Ltd, and BCV Partnership Co., Ltd., to conduct a venture capital business and invest in startups, focusing on the 10 government-promoted businesses. This will bring about collaboration in innovations between Bangchak and its own subsidiaries as well as other business partners.
What is the company’s policy for dividend payment?
The company’s policy for dividend payment is no less than 30% of net profit, after the deduction of allocation of legal reserve according to company rule and the law. It depends on the state of the economy, the company’s cash flow, and the company and its’ subsidiaries’ investment plan. Consideration is also based on necessities and appropriateness, as well as other considerations that the company’s board sees fit.
Since the company has increased plans for future investments, does the company have plans to increase share capital? Has the company put any policy in place in regards to the management of financial ratios?
The company will consider capitalization mainly through loans, but will consider increasing capital when there are terrific projects that are capital intensive. And/or when taking on further debt increases the company’s financial risk. The company has a policy for financial management by keeping Net Debt to Equity ≤ 1 and Net Debt to Operating EBITDA ≤ 3.
What plans do the company have to handle periods of low oil price?
The company has belt tightening measures to oversee expenses and various investments, in order to lower expenses, and closely monitor global oil price consistently. Along with planning more concise future investment plans in order to protect against repercussions against performance.
What is petroleum?
Petroleum refers to Hydrocarbon molecules that exist in nature with elemental building blocks consisting of carbon and hydrogen, however there might be other elements mixed in such as sulfur, oxygen, nitrogen. Petroleum can remain in a solid, liquid, or gaseous state; this depends on other elements that composed the petroleum, heat, and the pressure of the environment where the petroleum had been deposited.
What is an Octane number?
An octane number denotes the resistance to pre-detonation before the engine dictates, or a number showing antiknock of fuel for an engine. The higher the octane, the more resistance the fuel will become to engine knocking. The octane number has nothing to do with the power of the engine. Each Benzene engine in different models of cars and motorcycles were designed differently, thus requires the need for Benzene fuel with differing octanes. One should select Benzene fuel octane that best suits the needs of the engine as designated by each manufacturer to capture the best usage performance.
What is natural gas?
Natural gas is fuel gas that consist mainly of Methane gas, it can be utilize as fuel in vehicles in the same manner that Benzene and Diesel fuel is used.
Natural gases for cars are mainly called NGV gas, these highly pressurized natural gas (more than 3,000 PSA) are called Compressed Natural Gas (CNG) in some countries. NGV has the following special qualities:
- Has lower proportion of Carbon than other fuel types.
- Having the properties of a gas, it provides a more complete combustion than other fuel types.
- The amount of exhaust released a vehicle running on natural gas in lower than any other fuel types.
- It is a fuel type that does not cause black exhaust or other hazardous toxins.
What is NRV, and what does it stand for?
NRV or Net Realizable Value, by accounting standard, is realized price of an asset in normal business circumstance less a reasonable estimate of the costs associated with the eventual sale or disposal of the asset, including its production. NRV represents the true value of the asset in the company’s financial statements.
After filling up, my car starts displaying signs of engine knocking and sputters in motion, why is that?
The reason for such an occurrence may be caused by either the engine or fuel, depending on each situation. In terms of the car, the problem might stem from engine upkeep such as a blocked engine filter, dirty spark plugs or have deteriorated below operational threshold, neglecting to change engine oil. As for the fuel, there are many possibilities, such as the oil may be contaminated or fueling up on the wrong type of fuel. The company has made it the utmost importance to control fuel quality, by controlling the quality from the production, to the storage at depots, including the transportation of fuel and dispensing it to consumers. Thus, the company is confident that Bangchak fuel is of quality and standard.
We have heard that filling up in the morning would get us more fuel than in the day time, is this true, and how so?
Theoretically, this claim is true. Due to oil molecules expanding under high temperatures. However, in reality the difference in fuel temperature stored at service stations during daytime and nighttime may be negligible. Furthermore, by comparing the fuel quantity that consumers will receive each time, the quantity increase observed is not noticably different.
Would filling up back and forth between many brands have any adverse effect on the engine?
Theoretically, it would not cause a problem. Due to every brand has to adhere to the standards set by the Ministry of Energy. Except when filling up at a service station that has smuggled low quality fuel in to sell.
If I want to contact IR officers, how can I reach them?
How does the adoption of TFRS 9 and TFRS 16, starting from 2020, affect BCP’s financial statements?
For TFRS 9, all financial derivatives are recorded on BCP’s statement of financial position, and their related profit and loss from marked to market (by financial institutions) will be recognized in income statement. Financial assets such as loan to related company will be tested for impairment by Expected Credit Loss method when there is an indicator. The impaired amount will be recorded in income statement.
For TFRS 16, all leases are classified as assets and presented in a specific line on statement of financial position. There will not be any expenses from operating leases, the cost will be booked as depreciation instead. This adoption leads to the comparably higher EBITDA and Debt to Equity ratio.