Star Petroleum Refining Public Company Limited (SET: SPRC) has recently announced that the oil leak at the offshore Single Point Mooring in the Gulf of Thailand has been cleaned from the sea surface. The impact from this leakage is now under an investigation for damage assessment in various parts.
There is no report of any injuries from the incident and the company states that it has insurance coverage under property damage and business interruption, marine cargo, and third party liability.
However, the share price has declined more than 6% from January 26, 2022, when the incident had occurred. On February 8, 2022, the share price of SPRC closed at THB9.80 per share, decreased THB0.40 or 3.92%.
FSS International Investment Advisory (FSSIA) stated that even though the incident is regrettable, SPRC’s highly effective, fast, and very responsive actions to contain the damage reflects SPRC’s efficient crisis management.
FSSIA believed the downside from the oil spill is now limited to less than USD10m, comprising: 1) the USD1m deductible amount for third-party liability from SPRC’s USD100m insurance coverage for the compensation paid to fishermen, operators of hotels and other tourist-related businesses on the seaside of Samet island; 2) the property damage to the single-point mooring (SPM) site, which SPRC estimates to be less than USD1m; and 3) SPRC is expected to incur an additional freight expense of USD4-5m in Feb-22, assuming that SPRC is able to resume operations at its SPM by Mar-22.
Looking beyond the oil spill downside, FSSIA saw an earnings upside from SPRC’s rising market gross refining margin (GRM) to over USD5/bbl in 4Q21 into 1H22, driven by the much higher margins for gasoline, diesel, and particularly jet fuel, based on the Dubai crude oil price despite the sharp rise in global crude prices.
FSSIA believed this is due to tighter supply caused by geopolitical tensions and the highly disciplined co-operation by OPEC+ members to maintain the group’s monthly crude oil production cap at only 0.4mbpd. Also, FSSIA believed the current uptrend in product margins over the Dubai price should continue into at least mid-2022 given the stronger demand outlook and the resumption of intercontinental tourism.
In addition, FSSIA maintained BUY and its target price of THB13.5 per share, stating that SPRC is now back as its top pick in the Thai refinery sector given the company’s successful and effective crisis management of the oil spill which limited the financial and corporate governance damages, allowing its share price to rerate.
