Who wants to buy an oil company?

EYES WIDE OPEN - Iris Gonzales (The Philippine Star) - February 18, 2021 - 12:00am

These days, it’s hard to imagine how it was during the oil boom of yesteryears. Oil flowed like the gold rush and money was easy. Even stock market investors became instant multimillionaires when oil companies went public.

However, the days of the oil boom are now a distant memory, no thanks to the deep impact of COVID-19 on our economy and the rest of the world. Gone are the days when money was easy and oil sold like gold, at least for now.

Here in the Philippines, the big boys have shut down their refineries – Chevron, Shell and Petron.

Times are hard indeed, especially with demand from retail oil consumers down and the jet fuel business also in bad shape because of the slump in air travel.

Phoenix petroleum

It’s so uncertain nowadays that Dennis A. Uy or DAU of Davao is willing to sell a stake in his flagship business Phoenix Petroleum, the oil company which rose like a phoenix from just a trading business.

DAU, perceived to be among President Duterte’s favorite tycoons, is willing to have his stake diluted to 51 percent from around 67 percent, or so I heard.

But who in his right mind would buy or buy into an oil company at this time especially with the recovery for the oil industry moving at a very slow pace?

Phoenix, like other companies, has a significant amount of liabilities.

According to its 2019 annual report, it has total liabilities of P65 billion, of which P38 billion are interest-bearing loans and borrowings considered as current liabilities.

Surprisingly, however, there are or there were interested investors in related industries who are said to be interested in Phoenix. I heard that the Delgado Group and retail tycoon Lucio Co are among the interested investors.

DAU will not confirm nor deny these names, even jesting that I should add foreign investors to my list of interested parties.

What is certain, for now, is that times are difficult for everyone and businesses have been unloading some assets to raise funds or maximize opportunities.

Last year, DAU’s Udenna sold its 50 percent stake in LPG company South Pacific Inc. DAU received a good offer, banking sources told me.

“The offer was generous, so DAU eventually accepted,” said a source. The generous offer amounted to several billions, much higher than Udenna’s original investment of P1 billion.

But this doesn’t mean Dennis Uy has exited the LPG business. DAU still has his own LPG business in Manila and in Vietnam, which are growing fast.

Back to Phoenix, the oil firm implemented major steps in strengthening its balance sheet through a comprehensive financial management program amidst the challenges of the COVID-19 pandemic.

“It has been a turbulent year, but we have been making headway in our engagements with creditors, and are ending the year with renewed strength and positivity. We are making significant progress in ensuring the company’s long-term viability as a business to come out a healthier and stronger enterprise after this pandemic,” Phoenix Petroleum president Henry Albert Fadullon said earlier.

Shell, Petron not selling

As for the other oil firms, they are not selling stakes, at least for now.

Shell expects to turn in a profit this year, a source familiar with the matter said. Insiders are optimistic the company is fairly in good shape despite the challenges.

Tycoon Ramon Ang, likewise, said Petron is not for sale when I asked him about it.

Independent oil firms

Will the independent oil companies or the smaller oil firms consider merging given the challenging environment?

Existing players don’t believe so. They say it’s only Phoenix that is willing to sell a stake.

Perhaps, most will ride out the challenges and wait for the oil boom to return.

Realistically, it will take a long time before the oil industry recovers as it will depend largely on the recovery of the economy.

Like others, the oil industry needs help from the government to survive. For one, a more intensified crackdown on oil smuggling is needed.

Even before COVID-19, the local oil industry has always faced big challenges – smuggling, cheaper imports, new taxes and volatile crude prices.

But the biggest challenge really is oil itself.

The Philippines does not have its own oil resources except for a few wells with insignificant amounts of oil.

Unlike our peers in the region who have strong government support for the oil industry and which regularly explore for oil, the Philippines is simply not drilling often enough to find that pot of gold – or oil – in our territories.

And in the slightest chance we ever find more, China may just beat us to it. But that’s another story.

Iris Gonzales’ email address is eyesgonzales@gmail.com. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com

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