U.S. Markets open in 8 hrs 41 mins

Edited Transcript of TOP.BK earnings conference call or presentation 8-Nov-19 8:00am GMT

Q3 2019 Thai Oil PCL Earnings Call

Bangkok Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Thai Oil PCL earnings conference call or presentation Friday, November 8, 2019 at 8:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Tarika Devahastin

================================================================================

Conference Call Participants

================================================================================

* Ajay Mirchandani

JP Morgan Chase & Co, Research Division - Senior Analyst

* Mayank Maheshwari

Morgan Stanley, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Unidentified Company Representative, [1]

--------------------------------------------------------------------------------

Good afternoon, everyone -- sorry. Good afternoon, everyone.

First of all, thank you so much for joining the conference call financial results 3Q 2019 with Thai Oil.

For your information, I think all the information, including financial statements, MD&A and also the brief presentation for the conference call, we submit to the Stock Exchange of Thailand. And also, we put slides in our website so you can go through the material as your reference as well.

And during the call, besides the Investor Relations team, we have the management, Khun Tarika, Vice President on Financial Planning also joining the call as well to help address the questions that you may have at the end of the session.

And as usual, I think while you go through all the material, our IR team, Khun [Natakar] will help walk through the key highlight of Q3 financial results around 10, 15 minutes, and then we open for the Q&A at the end of the call.

So please, Khun [Natakar,] help brief the information.

--------------------------------------------------------------------------------

Unidentified Company Representative, [2]

--------------------------------------------------------------------------------

Thank you.

So for other key highlights in Q3, starting from refinery business unit. In Q3, refinery transition rate was 96%, lower than 1.3% in Q2 due to our planned major turnaround of distillation #3 and related units during mid-June to mid-July, and also Aromatics Complex since June to end of July.

So in terms of gross, if I reimagine, excluding stock gain and loss for market GRM in Q3, it was $4.1 per barrel, increased by $1.5 per barrel from Q2 which was reported at $2.6 per barrel. As you can see, that's from the product spread, but was increased for all of the products. For example, gasoline product spread are higher at $4 per barrel from better demand in the U.S. driving season, while supply was tight from the permanent shutdown of the U.S. refinery due to the fires.

And the middle distillate product was up $3 per barrel Q-on-Q from an impact of the drone attack (inaudible) in Saudi Arabia, resulting in lower crude production in Saudi refinery together with the lower supply from refinery shutdowns previous. As well as the sea oil. It rose from the power demand in Middle East during the summer months.

However, in terms of light crude premium in Q3, it was higher than Q2 driven by the lower OPEC crude supply due to the production cap agreement and also the impact from the Saudi Arabia crude supply loss from the drone attack. However, since now as we check, Saudi Arabia has already come back to the normal level right now.

For example, in Q3, Murban crude premium growth around $0.7 per barrel to $3.4 per barrel compared to the Q2 at $2.7 per barrel. However, if you're looking at the improved of the product spread, our market GRM should report at $5 per barrel. But due to the impact of maintenance shutdown period, so we had an opportunity loss from delayed production at fair volume at that time, accounting for around $0.60 to $0.70 per barrel as well as the higher utilities cost during the shutdown period of about $0.30 per barrel. So all in all, our market GRM in Q3 was improved by $1.50 per barrel to around -- and reported at $4.9 per barrel in Q3.

And in terms of stock loss this time, however, crude oil price ending Q3 wasn't so different much from ending Q2. As you can see, as of September, Dubai around $61 per barrel and average Dubai in June was around $62 per barrel. But during Q3, crude oil price was high quite a lot, especially in August. Dubai price dropped more than $4 per barrel from the month before, which was pressured by the impact of the U.S.-China trade war, which made oil demand growth as well as the record-high U.S. crude supply. And during -- in the August, it is the same time as Thai Oil coming back from the major turnaround, refinery crude line at high level. And while the cost of the crude that we used was quite high, which was the weighted average crude carrying from almost the end of the Q2 because during mid-June to mid-July, when we had a major turnaround period. We had less volume of crude oil and had normal crude line that we incurred a huge stock loss in our gas. While if you see the crude oil price in September, a bit higher from month-on-month, but it couldn't totally offset the huge loss in August. At (inaudible), we had a stock loss around THB 1,373 million or is equivalent to around minus $1.80 per barrel in Q3.

So if you combine here the impact of the stock loss in Q3, the GRM, including stock loss was around $2.30 per barrel, lower by (inaudible) per barrel from Q2.

So next, it would be the Aromatics and LAB business unit. In terms of aromatic production in Q3, it was 54% lower than Q2 because of the planned maintenance shutdown in the whole aromatic complex during mid-June to end of July. And for the product-to-feed margin of aromatics in Q3, it was $42 per ton from $75 per ton in Q2 mainly from our legal PX product spread as well as lower production and sales volume during our planned major shutdown.

The PX spread over USD 95 in Q3 dropped quite a lot from Q2, around $79 per ton, which mainly pressured by new aromatics supply addition in China, the total PX production capacity of around 4.5 million tons per year. While benzene spread was recovered a bit from Q2. That spread was minus $12 per ton and it recovered to $60 per ton in Q3. That was from some high-cost producer reduced their own rate helping reducing abundance of [that] in the market. However, demand of downstream products remained sluggish due to the U.S.-china trade war was impact as well as new supply additions pressured the market.

However, in Q3, our Aromatics business unit EBITDA still (inaudible) again. What we had -- because we had a hedging gain mainly in the paraxylene margin hit around BHT 274 million to offset the weak performance and high maintenance cost during the maintenance period in Q3. So in terms of the contribution to group, integrated margin from Aromatics and LAB business units, it was at $0.5 per barrel in Q3, lower than $1 per barrel in Q2.

And moving on to lube base oil business unit. Lube base oil production rate in Q3 was at 81%, slightly lower from Q2 at 85%, tracking with the softer lube base oil product spread which was pressured by the weak demand from sluggish economy conditions.

And in terms of P2F of lube base oil in Q3, slightly reduced to $83 per ton from $94 per ton in Q2. Lube base oil spread was slightly softer by new supply additions, both in China and Singapore as well as lower bitumen sales volume was low because of the rainy season. That's the GRM contribution from lube base oil business unit in Q3 was below $0.5 per barrel, lower than Q2, which was $0.70 per barrel.

So if we combine the margin from 3 main business units, group integrated margin, excluding inventory, gain and loss, or market GIM, it was $5.1 per barrel, higher than Q2 by $0.9 per barrel. That's mainly from the improved petroleum product spread. However, as mentioned earlier, in this quarter, we also had a stock loss around $1.80 per barrel. That GIM including inventory loss in Q3, was $3.30 per barrel, lower than Q2 around $0.7 per barrel. So that's for the margin side of 3 main business units.

So if you're looking at the group cash cost, in Q3, we have the group cash cost around $3.70 per barrel, higher than Q2 by $0.60 per barrel. The $3.7, consisting of operating cost at $3 per barrel, higher than $2.5 per barrel in Q2. That was mainly from the maintenance cost from planned turnaround of the refinery and aromatics complex, altogether was around BHT 444 million, and the lower intake during the shutdown period. So that's why in terms of dollars per barrel, it seems high when compared Q-on-Q. While the interest expense, netting off interest income in Q3 was $0.7 per barrel.

And in terms of net profit contribution from the 3 main business units, refinery, aromatics, and LAB and lube base oil in Q3 was contributed net loss around BHT 1,102 million due to huge stock loss that was around THB 1,373 million. And their profit from other business units, such as power, solvents, marine and ethanol, altogether, were THB 426 million, the majority of which is from power business, where we recorded net profit of THB 467 million, consisting of our small power plant of Thaioil Power and TOP SPP around THB 249 million, and equity income from GPSC around THB 217 million.

Accordingly, in total, Thai Oil reported consolidated net loss in Q3 at THB 683 million or is equivalent to EPS around minus THB 0.33 per share. And this quarter, we had other items mainly in the accounting items such as the NRV. In Q3, we had write-down NRV on crude inventory of around THB 14 million, which is mainly from the crude inventory that we hold our 1.2 million barrel and because of crude was around $64 per barrel.

But when you compare with the market, price of crude oil in September, it was $61. So we marked down $3 per barrel of 1.2 million barrel of crude of around minus THB 86 million. But we have reversal of NRV crude that we booked in Q2, around 74. So that's why netting off the reversal in Q3, we had an NRV write-down of crude at THB 14 million.

And for the product inventory, it also has an accounting items. We had adjusted product stock to cost around minus THB 338 million so which is accounting item only for adjusting product ending inventory to be at a lower cost. During -- because during the end of Q3, product price was in the rising trend and it was higher than its cost, so that's -- on the accounting standard, we need to mark down this.

And commodity hedging gain in Q3. We reported commodity hedging gain at THB 147 million mainly from gain on PX margin hit around BHT 274 million, but it was partially offset with a loss on fuel oil margin hedging and Dubai margin hedge.

And also, for the FX gain/loss in Q3, we had the FX gain around THB 303 million, mainly from FX gains from risk management activities because we had the USD debt around USD 2,000 million and the baht appreciate around THB 0.15 per USD. So that's why we -- the cost of gain -- unrealized gain around THB 287 million. And FX gain from [EP&A] are around THB 16 million.

And lastly, in terms of tax expense, in Q3, we had reversal of income tax for THB 222 million. That -- if you see the peak tax rate, as of 9 months in this year it was 17%.

So that concludes the Q3 performance highlights.

Abertis, I will open for the Q&A session.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions)

--------------------------------------------------------------------------------

Unidentified Company Representative, [2]

--------------------------------------------------------------------------------

Any questions?

--------------------------------------------------------------------------------

Unidentified Analyst, [3]

--------------------------------------------------------------------------------

Yes. John [Lawson] here from [Pacific Investments.] Can you just give us some outlook on the GRM and how you expect the final quarter in [2 22] (inaudible) and also how the effects of IMO 2020 might come into play?

--------------------------------------------------------------------------------

Unidentified Company Representative, [4]

--------------------------------------------------------------------------------

Okay. I think if you look at the Singapore product spread in Q4 and also our view in 2020, we think some of the impact of time or start coming in, especially on the high-sulfur fuel oil. As you can see from the Singapore product spread, that's right now, I think, high-sulfur oil trending at negative 10 to negative 15 and Dubai -- compared to Dubai. I think the impact of them all start coming in on fuel oil as the people try to stop buying high-sulfur fuel oil because they're seeing that there'll be no demand entering IMO January next year.

And for the diesel and the jet fuel, I think so far, the product spread still average around $15 to $16 per barrel, increased marginally from Q3. And I would say that the spread at the moment for the diesel/jet fuel does not reflect that, the full switching demand yet for the IMO. Just that mainly the people does not buying fuel at the moment, but the demand for the diesel and jet is not coming yet into diesel and jet fuel. Therefore, we think as we move towards the end of the year, that there could be some potential upside for the diesel and jet fuel. And also, when we're entering first Q next year, there'll be more demand and more positive upside on the diesel and jet fuel going forward.

So I think that the level that we expect for the diesel/jet fuel, we think it should be almost $20 per barrel, the spread, over Dubai, given the impact of the IMO compared to the today's spread, only $16 per barrel.

--------------------------------------------------------------------------------

Unidentified Analyst, [5]

--------------------------------------------------------------------------------

Okay. Given the sort of supply-demand as refineries and demand for finished products, how do you expect the GRM to move? Because it seems pretty low this year. We've had a little bit of comeback in Q3. Are you expecting this after next year because of the more favorable supply-demand? Or is it still going to be fully demand-based outlook?

--------------------------------------------------------------------------------

Unidentified Company Representative, [6]

--------------------------------------------------------------------------------

I think if -- let's say, if you look at fundamentally, in terms of the demand and the supply itself of the refinery, I would say that next year, there'll be a bit of the supply is coming in, and some of the additional supply basically shifted from this year, for example, the Malaysian project earlier expect to come online this year but they're delayed and potentially it will come next year. Therefore, total supply addition next year is relatively huge compared to the demand growth. So fundamentally, GRM should be weakened next year compared to this year.

However, given the indication of the IMO, I think the refinery, who has more on diesel and jet fuel in terms of their production view. In general, I think still benefit in terms of the refinery margin. While for the refinery that has a high portion on the fuel oil and also gasoline the GRM could be weakened compared to those who have more on the diesel and jet fuel.

--------------------------------------------------------------------------------

Unidentified Analyst, [7]

--------------------------------------------------------------------------------

Okay. What's -- can you explain why things on jet fuel are going to be impacted in a positive way when obviously they're not used in shipping? Can you just explain -- I mean in shipping, jet fuel.

--------------------------------------------------------------------------------

Unidentified Company Representative, [8]

--------------------------------------------------------------------------------

Yes. I think the way that -- as I mentioned, I think jet fuel is basically it's a related product to diesel. So basically, from the producer perspective, it's a bit easier for the refinery to shift between diesel and jet production. Therefore, if there'll be more demand on jet fuel, then typically refinery can maximize diesel at the expense of the jet production. Therefore -- so that's why the price of the diesel and jet, typically is move together.

--------------------------------------------------------------------------------

Unidentified Analyst, [9]

--------------------------------------------------------------------------------

I have a question. So this is related with your -- the NRV reversal you mentioned for the third quarter in the MD&A. I see that number at around BHT 677 million. And if I adjust it for the cost -- that is of product, and for crude, if I added that, that is around around BHT 663 million. When I see the presentation, the number, 352 was mentioned, which is reversal of crude NRV and adjusted to cost. I'm just not able to understand what is the difference between these 2 numbers. The first page of the presentation, the operating...

--------------------------------------------------------------------------------

Unidentified Company Representative, [10]

--------------------------------------------------------------------------------

The first thing that -- the product NRV that's mentioned in the MD&A around THB 677 million, it's the markdown of the products inventory, right, to the product cost. But in this number, it's already included in the market GRM that we reported in terms of dollars per barrel already.

--------------------------------------------------------------------------------

Unidentified Analyst, [11]

--------------------------------------------------------------------------------

This number -- THB 677 million is already included in the market GRM?

--------------------------------------------------------------------------------

Unidentified Company Representative, [12]

--------------------------------------------------------------------------------

Right.

--------------------------------------------------------------------------------

Unidentified Analyst, [13]

--------------------------------------------------------------------------------

You mean to say that, right?

--------------------------------------------------------------------------------

Unidentified Company Representative, [14]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Analyst, [15]

--------------------------------------------------------------------------------

Yes. So okay. So how is this number -- so then, what exactly is the 352 number?

--------------------------------------------------------------------------------

Unidentified Company Representative, [16]

--------------------------------------------------------------------------------

352 in the slide?

--------------------------------------------------------------------------------

Unidentified Analyst, [17]

--------------------------------------------------------------------------------

In the slide, yes, exactly.

--------------------------------------------------------------------------------

Unidentified Company Representative, [18]

--------------------------------------------------------------------------------

So the THB 352 million is consisting of the true NRV. And another thing is adjust that product stock to cost. The difference -- the THB 352 million that's excluding the product NRV that I mentioned be converted in 77. But the adjusted...

--------------------------------------------------------------------------------

Unidentified Analyst, [19]

--------------------------------------------------------------------------------

No. I'm sorry, I didn't understand the last point, 352?

--------------------------------------------------------------------------------

Unidentified Company Representative, [20]

--------------------------------------------------------------------------------

So the THB 352 million, consisting of 2 items. The first one is the NRV crude inventory, and the second thing is adjusted product stock to cost accounting. And the last one...

--------------------------------------------------------------------------------

Unidentified Analyst, [21]

--------------------------------------------------------------------------------

So [what are these] numbers? The crude inventory is BHT 14 million, I believe, which you reported, and the other number would be?

--------------------------------------------------------------------------------

Unidentified Company Representative, [22]

--------------------------------------------------------------------------------

The adjusted product stock to cost in Q3, it was around THB 338 million. So the -- this one is the -- is on the accounting policy. And this accounting is to map -- I mean to adjust the product ending inventory to be at the lower cost or -- compared with the cost or the market price.

In this case, in Q3, the market price was quite high. Because if you're looking at the product price at the end of Q3 it was a rising trend. When you compare with the cost of the product, the cost was lower. Then we need to mark down the market price to a lower...

--------------------------------------------------------------------------------

Unidentified Analyst, [23]

--------------------------------------------------------------------------------

So the THB 338 million is just the product. Only product, not crude.

--------------------------------------------------------------------------------

Unidentified Company Representative, [24]

--------------------------------------------------------------------------------

Yes. Right, the THB 338 million is for the product ending inventory.

--------------------------------------------------------------------------------

Unidentified Analyst, [25]

--------------------------------------------------------------------------------

And then how is this different from the BHT 677 million and accounting considered, sorry?

--------------------------------------------------------------------------------

Tarika Devahastin, [26]

--------------------------------------------------------------------------------

Okay. Let me explain about the product NRV. Actually, the NRV is accounting treatment to be the conservative way. It mean for the accounting, there you take the lower (inaudible) market.

For accounting for Thai Oil for the product, we book at first, we book at the market price. So then we say that it's in crude in the market GRM it means every time we sell the product, it already reflects the market price already. So when we try to reconcile the net profit to the market GRM, that's why we exclude the product NRV because it already reflects the real price of the product already. So we just take only the crude NRV because for the crude, we book at first, we book at cost. And then we take at the end of the month because we use like [3 day] audit accounting treatment. At the end of the month, we compare the cost to the market and then we use a concept, lower cost of market. So we have the write-down. We will also depend on the price of the crude.

So for the crude NRV, we think that it is -- that only accounting treatment we exclude from our net profit. The same as adjusted to cost for the -- if you can see that if any period that the product like [Contango] it means the market -- at the market, the price is going up. When we compare to the cost, it means cost still lower than the market. It's like we have to adjust the ending stock of the product through the cost of good sold. We have these items in the -- in our P&L. So this item also exclude from the net profit to make everything to be compared with our market GRM. Everything -- that's...

--------------------------------------------------------------------------------

Unidentified Analyst, [27]

--------------------------------------------------------------------------------

The THB 677 million is included in the market GRM?

--------------------------------------------------------------------------------

Tarika Devahastin, [28]

--------------------------------------------------------------------------------

Yes, yes. Right, right.

--------------------------------------------------------------------------------

Unidentified Analyst, [29]

--------------------------------------------------------------------------------

Yes. But the adjustment required is only -- for the products is only BHT 338 million. For products, BHT 338 million and BHT 14 million for crude. That is the only adjustment required to calculate the -- they are the same.

--------------------------------------------------------------------------------

Tarika Devahastin, [30]

--------------------------------------------------------------------------------

Yes. For the crude, we have...

--------------------------------------------------------------------------------

Unidentified Analyst, [31]

--------------------------------------------------------------------------------

That is the only...

--------------------------------------------------------------------------------

Tarika Devahastin, [32]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Analyst, [33]

--------------------------------------------------------------------------------

So you don't have to adjust for the THB 677 million because that you are including in the GRM calculations. But the operating profit you have to exclude the -- Okay, okay.

--------------------------------------------------------------------------------

Tarika Devahastin, [34]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Analyst, [35]

--------------------------------------------------------------------------------

And I had -- sorry, I had a follow-up question. Do you have any other costs to be booked related to maintenance in the fourth quarter?

--------------------------------------------------------------------------------

Tarika Devahastin, [36]

--------------------------------------------------------------------------------

Yes, sure. Because now for the total budget -- for the total plan that we're going to pay for the major turnaround costs is around THB 1 billion. Now we pay for 9 months is around BHT 800 million. So we have just some (inaudible) we're going to pay in Q4 because of -- for the maintenance cost, we have to pay based on our invoice. Even the project -- even the turnaround activity is done in Q3, but for invoice means delay, and we have to pay in Q4. Yes.

--------------------------------------------------------------------------------

Unidentified Analyst, [37]

--------------------------------------------------------------------------------

Okay. So you mean to say that's around THB 200 million? Because if you just said THB 1 billion is the budget and THB 800 million was still -- am I wrong?

--------------------------------------------------------------------------------

Unidentified Company Representative, [38]

--------------------------------------------------------------------------------

(inaudible)

--------------------------------------------------------------------------------

Unidentified Company Representative, [39]

--------------------------------------------------------------------------------

Yes, around that BHT 200 million, BHT 300 million, could be, yes. Additional booked in Q4.

--------------------------------------------------------------------------------

Unidentified Analyst, [40]

--------------------------------------------------------------------------------

Around -- additional book due to invoicing for the work done in 3Q, invoicing will be done in the fourth quarter?

--------------------------------------------------------------------------------

Unidentified Company Representative, [41]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [42]

--------------------------------------------------------------------------------

This is Ajay with JPMorgan. Quick clarification, specifically on the NRV that was raised by the previous question. I just wanted to better understand, the THB 352 million which is booked -- which you show in the presentation, as was pointed out, BHT 14 million is basically NRV related to crude. What -- I do not understand what the remaining THB 338 million is relating to.

--------------------------------------------------------------------------------

Unidentified Company Representative, [43]

--------------------------------------------------------------------------------

Okay. For the BHT 338 million is adjusted to cost, adjusted set of the ending inventory of the product through the cost. It's a bit different of the crude -- is different. That one is crude. This one is product.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [44]

--------------------------------------------------------------------------------

No. So I just need to be clear because it's a bit confusing. Your MD&A says THB 677 million NRV gain on product, yes? Your presentation says THB 362 million loss on NRV on crude and crude-associated adjustment. It doesn't say product anywhere there.

So why are we saying the THB 338 million relates to product when you've already given a separate NRV number for product? So I don't understand that BHT 338 million. Why is that related to product and not related to crude at cost?

--------------------------------------------------------------------------------

Unidentified Company Representative, [45]

--------------------------------------------------------------------------------

One moment.

--------------------------------------------------------------------------------

Unidentified Company Representative, [46]

--------------------------------------------------------------------------------

Ajay, let me try this. The question, you mentioned about the THB 338 million loss. That's one. It's, as I've said, product stock to cost. And the way that the presentation would like to show is that we would -- in this graph, we would like to reconcile the core operating profit of Thai Oil growth to be -- I mean, to reconcile with the market GIM. So that's why we try to -- I mean get out the item that is not related with the market GIM, for example, the stock in loss, which is excluding in the market GIM, right?

And the second thing is that the accounting adjustment, for example, in the crude NRV and also the adjust product stock to cost, so that's why we try to exclude it. And as you can see in this graph, the dark blue portion, THB 608 million, that one is the [core operating profit] (inaudible) is the improving market share in Q3.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [47]

--------------------------------------------------------------------------------

So the confusion I have is in the MD&A, there's an NRV product number, which you have booked in your GRM expenses and THB 677 million gain. Your presentation is showing me -- again, excluding the BHT 14 million, BHT 338 million NRV loss on product to stock, which you're telling me. So I'm not understanding why does the financial sale gained and why does your number here say a loss or at least 2 different items?

--------------------------------------------------------------------------------

Unidentified Company Representative, [48]

--------------------------------------------------------------------------------

Okay, for this quarter, as I mentioned, the product price is going up in Q3. So in this quarter, in Q3, is no product NRV. Because BHT 677 million is a reversal of Q2. So if no product NRV in this Q, is mainly how to adjust ending stock that we already booked at the market at a higher price than cost, then we have to write it down to the cost. That's why we have BHT 338 million in the adjustment to cost. When we combine that adjust stock to cost BHT 38 million with the crude NRV, BHT 14 million, we come up with the BHT 352 million in the graph.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [49]

--------------------------------------------------------------------------------

Where should I see the BHT 338 million in your financials? Because I can't see that number anywhere.

--------------------------------------------------------------------------------

Unidentified Company Representative, [50]

--------------------------------------------------------------------------------

You see the cost of goods sold, right?

--------------------------------------------------------------------------------

Tarika Devahastin, [51]

--------------------------------------------------------------------------------

It's including cost of goods sold.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [52]

--------------------------------------------------------------------------------

So the only way I'll get this number is through the presentation. And just to be clear, the BHT 338 million...

--------------------------------------------------------------------------------

Unidentified Company Representative, [53]

--------------------------------------------------------------------------------

Yes, yes, you can see the third remark -- in the third remark, you can see the BHT 338 million in Q3 in the graph.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [54]

--------------------------------------------------------------------------------

The third remark on -- what are we looking at, sorry? Am I looking at the presentation or am I looking at the financials?

--------------------------------------------------------------------------------

Unidentified Company Representative, [55]

--------------------------------------------------------------------------------

Yes, in the presentation showed the adjusted product to cost in the third bullet.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [56]

--------------------------------------------------------------------------------

Okay. I'll move on. The second thing I just wanted to touch on was can I just confirm Murban premium, you said was $3.7 this quarter?

--------------------------------------------------------------------------------

Unidentified Company Representative, [57]

--------------------------------------------------------------------------------

Yes, this quarter. Right now...

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [58]

--------------------------------------------------------------------------------

And can I confirm how much it is right now?

--------------------------------------------------------------------------------

Unidentified Company Representative, [59]

--------------------------------------------------------------------------------

Right now, the Murban premium, $4.2 per barrel. And in Q3, it was $3.4 per barrel.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [60]

--------------------------------------------------------------------------------

$3.4, you said?

--------------------------------------------------------------------------------

Unidentified Company Representative, [61]

--------------------------------------------------------------------------------

Right.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [62]

--------------------------------------------------------------------------------

And right now, it's $4.2, you said?

--------------------------------------------------------------------------------

Unidentified Company Representative, [63]

--------------------------------------------------------------------------------

Uh--hmm.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [64]

--------------------------------------------------------------------------------

Okay. And is this expected to remain at this $4-plus level?

--------------------------------------------------------------------------------

Unidentified Company Representative, [65]

--------------------------------------------------------------------------------

Yes. It's expected to remain around 4 toward the end of the year.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [66]

--------------------------------------------------------------------------------

Okay, okay. And just lastly, just to reconfirm, you mentioned about your GRM actually being $5 but the reported number was $4.1. You mentioned $0.30 because of utility costs, and there was a remaining $0.60 more because of what exactly?

--------------------------------------------------------------------------------

Unidentified Company Representative, [67]

--------------------------------------------------------------------------------

Okay. I think if you look at -- if you look from the outside-in from the -- what you see in the market, I think I already mentioned, if it has no -- it does have major maintenance, it should be spot market GRM of around $5 a barrel, but we report at $4.1. The gap around $0.30, a couple of higher utility cost because during the maintenance, when we start-up in the short term, it has the one concept, you see that's more than normal level. That's around $0.30 a barrel. And on top of that, that's a $0.50 to $0.60 a barrel is the opposite feed loss that -- the margin that we couldn't capture while we do the maintenance. So all-in, is $1 loss. That's kind of opportunity loss that we get in Q3.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [68]

--------------------------------------------------------------------------------

And just to be clear, opportunity loss because of lower utilization or is it largely because of...

--------------------------------------------------------------------------------

Unidentified Company Representative, [69]

--------------------------------------------------------------------------------

Because of the lower volumes and we had also the margin as well.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [70]

--------------------------------------------------------------------------------

Sorry, can you say that again?

--------------------------------------------------------------------------------

Unidentified Company Representative, [71]

--------------------------------------------------------------------------------

It's a combination of the lower volumes and the margin.

--------------------------------------------------------------------------------

Ajay Mirchandani, JP Morgan Chase & Co, Research Division - Senior Analyst [72]

--------------------------------------------------------------------------------

Okay, understand. This is clear.

--------------------------------------------------------------------------------

Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [73]

--------------------------------------------------------------------------------

Mayank here. A couple of questions, more in terms of the crude side as well as the impact that you are starting to see not just from Murban but overall in terms of crude mix, how has that moved into 4Q? And how much you think you're actually down, but I don't think that's representative of anything. But 4Q, how are you seeing your crude mix change considering where fuel oil margins are today?

And the second question was more related to how much has been the impact on the Aromatic division because of the shutdown in terms of OpEx?

--------------------------------------------------------------------------------

Unidentified Company Representative, [74]

--------------------------------------------------------------------------------

Okay. I think to your second question first, for the aromatic complex. In 3Q, the run rate is slightly lower than 2Q because of the long-term period of the maintenance. So basically, in Q2, major maintenance last only 15 days. But in Q3, it last 30 days because all-in major maintenance for the automatic complex is 45 days. So that's why production spread in Q3 is 10% lower compared to 2Q for the Aromatics. And maintenance for the Aromatics alone that's booked in 3Q is around THB 180 million.

--------------------------------------------------------------------------------

Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [75]

--------------------------------------------------------------------------------

THB 180 million?

--------------------------------------------------------------------------------

Unidentified Company Representative, [76]

--------------------------------------------------------------------------------

Yes. And moving back to your first question about the crude mix. I would say that, but given -- as you mentioned, given the weakness in the high-sulfur fuel oil spread at the moment, I think we will start to adjust some of our crude procurement by keeping a bit more lighter actually the crude.

So basically, recently, we procured more U.S. and also Russian crude. And some -- from other countries like for example, Azerbaijan, which is also light crude as well. So I think to your question, we started to shift into other grades which is more light and sweet at the moment.

So for example, I think in 3Q, we reduced middle grade around 8% increased other grades, which is mainly Russia and also Kazakhstan around 8% as well. And we expect the trend will continue towards the year-end and also for next year as well.

And in terms of the crude premium in the Middle East, I would say that in general it's still stay relatively high. So for example, the Murban right now is trading $4.2 per barrel, increased from $3.4 in Q3. So we think the premium will stay more or less at this level over the year-end, $4 to $4.5. But I think -- beyond this, I think we better move to other grades, like, as mentioned, U.S. and also for Russian as well.

--------------------------------------------------------------------------------

Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [77]

--------------------------------------------------------------------------------

So these other grades that you're moving to, are they at the expense of mobile or any other grade?

--------------------------------------------------------------------------------

Unidentified Company Representative, [78]

--------------------------------------------------------------------------------

It's also we trade other grades as well. Sometimes, we trade Murban spot as well, and sometimes we trade other grades. So basically, replace -- I would say that mostly from -- across the board from the Middle East.

--------------------------------------------------------------------------------

Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [79]

--------------------------------------------------------------------------------

Okay. So -- okay. So what has been the change in API for you because of this change in grade shift?

--------------------------------------------------------------------------------

Unidentified Company Representative, [80]

--------------------------------------------------------------------------------

For the API, I think I'd have to check. I don't have the exact number at the moment, yes. So I would check the math on the API. But I don't think there should be -- shouldn't impact so much.

So let's say, for example, the Murban -- let me chack and get back for a number.

--------------------------------------------------------------------------------

Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [81]

--------------------------------------------------------------------------------

Okay. And sir, any updates on what are you doing with your 3%, 4% SFO that you are left with?

--------------------------------------------------------------------------------

Unidentified Company Representative, [82]

--------------------------------------------------------------------------------

For sulfur fuel oil, right?

--------------------------------------------------------------------------------

Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [83]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Company Representative, [84]

--------------------------------------------------------------------------------

I think now -- I think we'll try to get rid of the high-sulfur fuel oil. So I think that's the objective. That's -- we want to do because of the weakness in the spread. So I think one way is to shift towards more light and sweet. And also the other way, I think we prepare all the facilities to do the blending to get rid of the high-sulfur fuel oil.

So basically, now what the commercial team is trying to do, together with the technical team, commercial team try to find the new market for the high-sulfur oil. If we can find new market, then we can dispose this high-sulfur fuel oil into -- not so bad. I think, that's also one of the concept as well. Otherwise, we have to get rid by adjusting our production, basically by adjusting our crude or by doing the blending.

But just to be honest, I would say that for Thai Oil, we produce low-sulfur fuel oil at cost, so basically, we process more expensive crude which is light sweet. Or we blend the high-value product, which we sell into fuel oil with a low sulfur.

So basically, we do have cost. But I think the objective is to get rid of high-sulfur oil so that we can maximize one at the refinery and capture the benefits of the middle distillates that we get. I think that's the concept.

--------------------------------------------------------------------------------

Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [85]

--------------------------------------------------------------------------------

Yes. But is the real SFO grade ready for PTT as a group and higher, specifically, with the blending thing that you're trying to do?

--------------------------------------------------------------------------------

Unidentified Company Representative, [86]

--------------------------------------------------------------------------------

Right now, it's only Thai Oil, only Thai Oil.

--------------------------------------------------------------------------------

Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [87]

--------------------------------------------------------------------------------

So it's only you who are doing it?

--------------------------------------------------------------------------------

Unidentified Company Representative, [88]

--------------------------------------------------------------------------------

Yes. I think right now, it's only Thai Oil. I think for other refineries, they're trying to do optimize by themselves. Because we used to study together, but I think the cost of transportation between the refinery, it's not justify economical single-pool blending. So now, we optimize by ourself.

--------------------------------------------------------------------------------

Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [89]

--------------------------------------------------------------------------------

Okay. So -- but are you -- is your grade ready and marketing now? Are you marketing that grade or it's still work in progress?

--------------------------------------------------------------------------------

Unidentified Company Representative, [90]

--------------------------------------------------------------------------------

I think we do some marketing by taking a sample to many customers who have the spec. I think now we don't have any problem on the spec. So I think by early December, we will start producing low-sulfur fuel oil. But in the short term, potentially it's 2 to 4 weeks, we still not meet 0.5% offer yet because it takes like 3 to 4 weeks to dilute the sulfur in our oil facility. So I think we try to produce the low sulfur starting from early December and that 100% spec to be met by first half. I think that's what we work with customers.

--------------------------------------------------------------------------------

Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [91]

--------------------------------------------------------------------------------

Okay, okay. That's clear. I think just one more question. Sorry, if there are no other questions. I was just thinking if -- can you just highlight what is the -- because you are seeing a massive negative hit on your net interest expense because of the cash drag that you're seeing on your balance sheet. Any plans to reduce that?

--------------------------------------------------------------------------------

Unidentified Company Representative, [92]

--------------------------------------------------------------------------------

Okay. Based on the CapEx in MD&A, I would say that next year, all the surplus cash that we have at the moment will be gone. Because this year, I think we will spend for the CFP around BHT 900 million, but next year it's almost BHT 2 billion. So I think that the surplus cash that we have at the moment will be gone by mid of next year as well.

--------------------------------------------------------------------------------

Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [93]

--------------------------------------------------------------------------------

Okay. So by mid- of next year, it will be all spent up, okay?

--------------------------------------------------------------------------------

Unidentified Company Representative, [94]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Analyst, [95]

--------------------------------------------------------------------------------

Could I ask about your closing CapEx for this year and next? I know you've got a big project on hand. Can you tell us a bit about how that will in fact -- how that benefits profitability from the project? And then secondly, the options of cash. What's your thought on dividend payout ratios going forward?

--------------------------------------------------------------------------------

Unidentified Company Representative, [96]

--------------------------------------------------------------------------------

Okay. I think just to recap the primary benefit of the CFP or the greenfield project, there are 2 primary benefits. The first one is to upgrade our facility. So basically, within the project, we will install a new operating unit, so that's -- the benefit will come from the ability to process more cheaper crude in the future. So from the light crude that we are processing today, after the project start-up in 2023, we will move toward the heavier and cheaper crude so we can capture the light-heavy differential. And on top of that, with the new upgrading units, we will no longer produce a fuel oil in the future. So basically, fuel oil that we are that we are producing today, 7%, everything will be upgraded to diesel and jet fuel.

So I think we estimate that the market uplift from these 2 activities is almost $5 to $6 per barrel. I think that's the first benefit.

The second benefit is also from the capacity expansion. Under the CFP, we will expand capacity by another 45%. So capacity will expand from 275 (sic) [275,000,] increase to 400 (sic) [400,000] bpd. And all will be realized by first Q 2023. And the project cost is USD 4.8 billion.

Before the project sanctioned, we accumulated cash in the company around $1.5 billion. And last year, we issued USD 1 billion bonds. And recently, in October, we issued another USD 565 million bond. So now, we have cash on hand around USD 3 billion to fund the project. And on top of that, we will use the cash from -- the cash flow from operations to fund the project, so I think in terms of the financial plan, I think everything is in place.

And the impact to the dividend, I think, for the company, even though policy is minimum 25% payout, but I think based on the track record, we paid around 40% to 45%. And we expect to maintain 40% to 45% payout, even though we have a big CapEx. So I think that's what we would like to invest that in order to have the anticipation up.

--------------------------------------------------------------------------------

Unidentified Analyst, [97]

--------------------------------------------------------------------------------

Okay. So I mean, like, for example, now you're operate at a margin of like $4, $5 a barrel, and you're saying that this is going to double your margin. So now, you're going to add another $4 or $5 or $6 a barrel.

--------------------------------------------------------------------------------

Unidentified Company Representative, [98]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Analyst, [99]

--------------------------------------------------------------------------------

Interesting. And so I mean, basically, on one hand, because you're talking about a crude premium means you have to pay -- over the odds, have to get a better crude in the benchmark because of the nature of your plants. So you'll be able to buy cheaper crude. And then, as you say, you'll get rid of fuel oil, so -- which is a low-margin product. And those are the things we might benefit to understand.

--------------------------------------------------------------------------------

Unidentified Company Representative, [100]

--------------------------------------------------------------------------------

Okay. I think -- first of all, I think, as I mentioned, the margin will be $4, $5 a barrel. I think a good example, you can look at the Reliance Refinery GRM. That basically reports $10 or $11 per barrel on average. I think after we upgrade our facility, our complexity, our ability to process heavy crude and upgrade the product, heavy product into a light product will be more or less similar to the Reliance. So that, I think -- that's why there's Cambodia it will come from.

And for the heavy crude, right now, main crude is the Murban crude from UAE. In the future, I think the heavy crude that we are aiming to processing is heavy crude, for example, the crude -- the oil sands in Canada and also the Maya in Mexico. I think that's the benchmark crude when we talk about heavy in that branch of crude.

--------------------------------------------------------------------------------

Unidentified Analyst, [101]

--------------------------------------------------------------------------------

Okay. Just on the -- another thing is typically your operating profit, excluding the stock gains and losses, what's the kind of mix between your Aromatics side and then your crude -- typical crude price side in your ordinary refining business?

--------------------------------------------------------------------------------

Unidentified Company Representative, [102]

--------------------------------------------------------------------------------

Okay. If you look at 5-year average, refinery might, exclude inventory, gained a lot. We report around $4 to $5 a barrel and Aromatics, up another $1.5 to $2 per barrel and lube base up another $0.5 to $0.8 per barrel. I think that's the 5-year average. But this year, because of the weakness in the Aromatics and lube, the contribution from Aromatics, only $0.5 -- and to $0.5. Refinery is around $3 to $4. So this year, it's a bit weakness across the board. But if you look back for the past 5 years, selling, $4, $5 from the refinery; almost $2 from Aromatics, and $0.5 to $0.8 from lube base.

--------------------------------------------------------------------------------

Unidentified Analyst, [103]

--------------------------------------------------------------------------------

Yes, sorry, I see that, yes, you just get an add-on $3, $4 or $5 in the Aromatics and lube base, okay. And what's the outlook that you see because -- obviously, again driven by supply and demand in China, particularly often adding capacity? I mean, is that going to get better or worse next year, do you think?

--------------------------------------------------------------------------------

Unidentified Company Representative, [104]

--------------------------------------------------------------------------------

Okay. I think the outlook should be more or less maintained because it's already weak this year. And as you can see, CapEx contribution almost is the cash cost already. So we don't think there'll be a lot of downside from today. But I think the problem is that low contribution could stay for the next couple of years, given the abundant supply that is coming in, especially in China.

--------------------------------------------------------------------------------

Unidentified Analyst, [105]

--------------------------------------------------------------------------------

Okay. And just the other thing is that's your typical spreads. What is your typical the corporate costs when we go down from the refining margin, what's your selling, admin, other costs? I mean I'm assuming that the refining margin includes your cost of goods sold there, such as utilities and so on. But just trying to get a sort of operating kind of margin.

--------------------------------------------------------------------------------

Unidentified Company Representative, [106]

--------------------------------------------------------------------------------

Okay, sure. Sure, I think disregard the major maintenance cost, which is occur only like every 5 years. Typically, the refinery operating cash cost is around $1.50 per barrel. And Aromatics and lube base top-up another $0.50 per barrel. So all-in operating cash cost is around $2 per barrel.

--------------------------------------------------------------------------------

Unidentified Analyst, [107]

--------------------------------------------------------------------------------

Right. Okay, I understand. So yes, it seems like barrel off your $4 to $5. Yes, yes, yes, I understand. And then corporate costs, typically?

--------------------------------------------------------------------------------

Unidentified Company Representative, [108]

--------------------------------------------------------------------------------

Sorry?

--------------------------------------------------------------------------------

Unidentified Analyst, [109]

--------------------------------------------------------------------------------

Your corporate costs per barrel, if you please?

--------------------------------------------------------------------------------

Unidentified Company Representative, [110]

--------------------------------------------------------------------------------

I think that's already included in the operating cash cost.

--------------------------------------------------------------------------------

Unidentified Analyst, [111]

--------------------------------------------------------------------------------

Okay. All right. Okay, understand. Yes. Another thing I was kind of intrigued by is that every year, since like 2010, you've actually managed to have free cash flow even though -- I mean, obviously, the oil price has done some big moves up and down. Can you explain why that is?

I mean, it's just that I think that when the oil price comes down, we really make gains on your working capital. So the cash coming back is that which offsets the losses you make on holding the inventory -- cash losses on that. And then I think, overall, that your CapEx has been low versus the operating cash flow. So in fact, you've seen quite a good cash flow positive business. Do you expect that to continue going forward? I mean obviously, you've got these big projects at the moment.

--------------------------------------------------------------------------------

Unidentified Company Representative, [112]

--------------------------------------------------------------------------------

Understood. I think that the business will be remain as is, but I think going forward, given the big CapEx that is coming in for the next 3 to 4 years. So I think that the free cash flow will be negative for the next 3 to 4 years. But at this time, I think this project we planned for, for the past 3 to 4 years, so we accumulated some cash and also we issued more bond so we have what is negative free cash flow over the next 3 to 4 years. So basically, we have oil. So that's why I don't think there will be an impact in terms of the -- let's say, for example, the dividend that we plan to pay to the investors. I think it's already planned.

--------------------------------------------------------------------------------

Unidentified Analyst, [113]

--------------------------------------------------------------------------------

Okay. Yes. Sorry, can you give me any more details about the extra refining capacity coming on? You mentioned Malaysia, which is -- that's the -- you call it, fast -- Rapid project, right? That is -- is it that project, do you think...

--------------------------------------------------------------------------------

Unidentified Company Representative, [114]

--------------------------------------------------------------------------------

Yes, I think for example, next year, the big project will come from the Malaysia and also some from Saudi Arabia as well, the Jizan.

--------------------------------------------------------------------------------

Unidentified Analyst, [115]

--------------------------------------------------------------------------------

Jizan, yes.

--------------------------------------------------------------------------------

Unidentified Company Representative, [116]

--------------------------------------------------------------------------------

Yes, Jizan in Saudi Arabia and Rapid in Malaysia.

--------------------------------------------------------------------------------

Unidentified Analyst, [117]

--------------------------------------------------------------------------------

What about China? Is that going to be, the China [steady]?

--------------------------------------------------------------------------------

Unidentified Company Representative, [118]

--------------------------------------------------------------------------------

I think next year, [there will be not] much from China.

--------------------------------------------------------------------------------

Unidentified Analyst, [119]

--------------------------------------------------------------------------------

Not much from China, okay.

--------------------------------------------------------------------------------

Unidentified Company Representative, [120]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Analyst, [121]

--------------------------------------------------------------------------------

Yes. Why you are expecting Aromatics to maybe fall for the next 2 or 3 years? More -- especially on that side, coming on stream.

--------------------------------------------------------------------------------

Unidentified Company Representative, [122]

--------------------------------------------------------------------------------

Yes. I think most of the -- there's a lot of the supplies coming in from China for this year, next year for the Aromatics side.

Is there another question because we have another call in like 5 minutes? I'm not sure if there are any other questions.

--------------------------------------------------------------------------------

Unidentified Analyst, [123]

--------------------------------------------------------------------------------

Well, no. Thank you very much indeed for that. I'll give you guys a ring or a call if I've got...

--------------------------------------------------------------------------------

Unidentified Company Representative, [124]

--------------------------------------------------------------------------------

Sure, sure. I think if you have like more information, we can -- you can reach out to the Investor Relations team as well. I think we'll be happy to have the conference call to address your question as well.

--------------------------------------------------------------------------------

Unidentified Analyst, [125]

--------------------------------------------------------------------------------

Okay, great. I really appreciate that. Thank you so much.

--------------------------------------------------------------------------------

Unidentified Company Representative, [126]

--------------------------------------------------------------------------------

Thank you. Thank you so much.

Is there any other question from others?

Okay, so if there is no other questions, so thank you so much for having on call with Thai Oil this afternoon. And wish you a good afternoon, and good weekend. Thank you.