ESSO THAI REFINERY PROJECT, DIVESTITURE OKAYED

March 25, 1991
Exxon Corp. has won approval of its proposed $500 million Thai refinery expansion and a related offer to divest 30% of its Thai downstream interests to the Thai government and public. The divestiture involves Esso Standard Thailand (EST), wholly owned subsidiary of Esso Eastern. The move is a break with Exxon's long policy of sole ownership and operating control of assets in Thailand, where the company or a forerunner has operated for 96 years.

Exxon Corp. has won approval of its proposed $500 million Thai refinery expansion and a related offer to divest 30% of its Thai downstream interests to the Thai government and public.

The divestiture involves Esso Standard Thailand (EST), wholly owned subsidiary of Esso Eastern. The move is a break with Exxon's long policy of sole ownership and operating control of assets in Thailand, where the company or a forerunner has operated for 96 years.

ESSO THAI ASSETS, STRATEGY

The offer, under negotiations between EST and the Thai Industry Ministry, will give the Thai government and public access to EST assets that include a 65,000 b/d refinery, 12 oil terminals, about 650 service stations, and 400 gasoline distributors throughout the country.

EST employs about 1,100 fulltime personnel. EST imports about 100,000 b/d of oil, about 26% of the Thai market. EST assets were valued at 7.85 billion baht (about $314 million) in 1989.

With revenues of more than 32 billion baht ($1.28 billion) and income of 677 million baht ($27.08 million) in 1989, EST long has been the leader of the four major oil marketers in Thailand.

Thai industry observers see the offer as part of Exxon's strategy to bind itself with local interest groups that will help ensure expanding its presence there. It also follows Thai government's policy trends, which recently has emphasized the need for state participation in oil related projects, especially new refinery projects.

For all new refinery projects in Thailand, including those planned by Royal Dutch/Shell Group and Caltex Petroleum Corp., the government requires an eventual 25% interest in those projects be allocated to state owned Petroleum Authority of Thailand (PTT).

However, Shell and Caltex plan to create separate units to operate the new refineries while continuing to closely hold refining/marketing businesses.

AGREEMENT DETAILS

In return for the right to expand its Sri Racha refinery's crude processing capacity to 185,000 b/d, Exxon will offer an eventual 10% interest in EST to the Thai government and a 20% interest to the Thai public when the expansion is complete sometime in 1997-99. It also will pay the government about 350 million baht ($14 million) in fees.

In the initial expansion phase, calling for an increase in capacity to 145,000 b/d by 1994, the interests will break out as 87.5% for EST and 12.5% for the government.

EST opposes nomination of rival oil marketer PTT as government representative to hold the state's share, citing conflict of interest. It has asked other agencies to assume role of government shareholder in EST.

Meantime, Exxon has disclosed no plans to divest its three other wholly owned units in Thailand. Exxon Exploration Khorat and Esso Udon have spent more than $200 million for oil and gas exploration in Northeast Thailand.

Exxon Chemical Thailand has revenues of more than 1 billion baht ($40 million)/year.

However, Exxon Khorat has given a 20% holding in its Nam Phong concession around Khon Kaen to PTT upstream arm PTT Exploration & Production.

NEW GOVERNMENT POLICY

Approval of the Exxon plan came as the result of the Thai government's revised energy policy liberalizing establishment of new refineries, which had long been under strict official control.

The new policy also allows Caltex's $520 million refinery project to go ahead, following a series of disputes on a site for the 120,000 b/d plant.

The capacity finally approved for EST's Sri Racha expansion was changed from the firm's original $200 million proposal submitted in 1989. It called for debottlenecking to hike crude runs to 85,000 b/d and installing a 24,000 b/d Flexicracker unit and a 5,000 b/d reformer.

Last August, the company decided to change its proposal to boost capacity to 185,000 b/d to support its marketing in Thailand.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.