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BusinessWorld (Philippines): Shell allots P1.6B for capital expenditures

Ruby Anne M. Rubio
Published: Aug 24, 2007

Oil refiner Pilipinas Shell Petroleum Corp. has earmarked P1.6 billion for capital expenditure this year.

In a filing to the Securities and Exchange Commission, Shell said bulk of the capital expenditure will be allocated for refinery, depot, retail, commercial and liquified petroleum gas (LPG) operations.

“For the year 2007, a budget of P1.6 billion has been approved for capital expenditures,” it said.

The company is 67% owned by The Shell Petroleum Com. Ltd., a company registered under United Kingdom laws and 33% owned by Filipino and other foreign stockholders.

In a telephone interview, Shell General Manager for external affairs Roberto S. Kanapi said more than 70% of the budget would be used for maintenance of its refinery, expansion in the retail market through building of new service stations and rehabilitation of old ones, and purchase of liquefied petroleum gas (LPG) cyclinders.

“Our capital expenditure will cover growth in LPG and retail businesses,” he said.

Shell has an oil refinery in Tabangao, Batangas and various oil depots and installations all over the Philippines. As of June 30, it had 934 employees.

“The company remains committed to exploring alternatives for running and maintaining the Tabangao refinery. Driven by the ‘downstream-one’ integrated agenda alongside its commitment to the Shell business principles, including health, safety and environment and sustainable development, the company remains strongly positioned for continued growth both in business and overall reputation,” it said.

The downstream-one integrated strategy aims to optimize manufacturing facilities, standardize processes and improve services to customers.

“The strategy is also aimed at giving staff more time to focus on the areas that matter most to customers and make it easier for customers to do business with Shell,” the oil giant said in the filing.

Shell recorded a 41.03% increase in net income in the first six months, at P2.2 billion from P1.56 billion the same period last year.

It attributed the increase to higher volume and lower operating expenses partially offset by lower unit margin.

“The sustained high global oil prices continued to put pressure on the local oil demand despite the company’s 3% growth in sales volumes for the first half of the year,” it said.

The company’s sales volume of 2.96 billion liters in 2007 was 3.14% higher than last year’s 2.87 billion liters. Through robust sales and marketing programs and acquisition of new key accounts, the company was able to grow its business despite industry contraction of 1% as of April 2007, it said.

During the year, crude costs averaged $62.20 per barrel against $63.38 last year while the peso appreciated to P47.47 to the dollar from 52.06 last year.

Net sales during the six-month period slackened by 2.26% to P75.74 billion from P77.49 billion. During the quarter, it was 2.8% weaker at P39.82 billion from P40.97 billion.

Cost of sales went down 1.93% to P69.26 billion during the first semester from P70.62 billion the same period last year. For the quarter, it dipped by 2.5% to P35.93 billion from P36.85 billion.

“In general, the seasonality or cyclicality of operations is not applicable to the company’s type of business and demand is quite stable throughout the year albeit affected by adverse movements in world market prices for crude oil and finished petroleum products. Uncertainties brought about by potential supply disruptions, particularly in international markets, have placed significant pressure on the industry as a whole and resulted in continued contraction in demand,” Shell said.

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