Analysts Expect Limited Impact on ‘Thai Oil’ Performance after Oil Spill Incident

On Sunday (3 Sep), there was an oil spill accident that occurred from Tanker at SBM-2 and its pipeline of TOP’s refinery at Sriracha, Chonburi, Thailand. Thai Oil Public Company Limited (SET: TOP) confirmed that up to 100,000 from 5 million liters have been spilled over the sea surface.

TOP has deployed buoys to contain those spill over and will use the chemicals to drop the oil under the sea and collect those later, which the company believes the damage to all parties will be limited and manageable.

The analyst from Krungsri Capital Securities (KCS) listed TOP’s insurance coverages as follows.

1)      3rd party damage at USD 50 million or THB 1.75 billion (THB 350,000 deductible).

2)      Environmental damage at USD 25 million or THB 0.88 billion (THB 3.5 million deductible).

3)      All risk property damage at USD 255 million or THB 9 billion,

4)      and Oil loss at USD 761 million or THB 26 billion ( 3) and 4) have THB 175 million deductible).

5)      Business interruption at USD 1,120 million or THB 39 billion (60 days deductible).

KCS’ analyst expected TOP to use SBM-1 and its pipeline to operate instead if SBM-2 is unusable which will cost an additional THB 300 million a month and will shoulder monthly THB 85 to 90 million to ESSO for the unusability of SBM-2. TOP will need to use CBM through PTT’s port if SBM-1 is unusable.

The analyst from Kasikorn Securities (KS) estimated an inoperable worst case would cause a drop on TOP’s profit between THB 2.7 to 5.5 billion which is 25% to 50% of this year’s profit estimate from KCS’ analyst at THB 11 billion. KS expected TOP will have an increase in transport cost by USD 1 to 2 per barrel.

Furthermore, TOP will compensate all parties, including fishermen in the area, with the financial claims from its insurances which are estimated at THB 1 billion.

Even with the accident and lower profit from lube and aromatic, KCS’ analyst still see the recovery of TOP’s profit from last year due to the net stock loss is reversing to gain, the increasing refinery price to USD 10 – 12 per barrel and oil demanding season (US driving season, China, India and EU).

Earlier this year, KCS’ analyst set TOP’s target price at THB 65.5, but after the accident, the stock price dropped from over THB 51 to THB 48.75 per share.

The previous spillover accident from Star Petroleum Refining Public Company Limited  (SET: SPRC), has recorded the total associated cost of THB 1.7 billion over a year and still has THB 7.7 billion on-going lawsuits. KCS’ expected the overhanging of oil spill will impact 8-9% of TOP’s bottom line for every THB 1 billion it spends.