First outbound acquisition by teapot refiner 'a win-win'

A Chinese company's acquisition of a controlling stake in Shell Refining Co in Malaysia is a win-win for both the teapot refiner and Shell, an analyst said.

Shandong Hengyuan Petrochemical Group Co has agreed to invest $66 million for the acquisition of Shell Refining in Malaysia and will continue to provide petroleum products to Shell's downstream businesses in the Southeast Asian country.

This is China's first outbound acquisition by teapot refiners, an industry term which refers to small refiners with a capacity ranging from 20,000 barrels per day to 100,000 bpd.

"One man's trash is another man's treasure and Shell and Hengyuan play complementary roles for each other," said Li Li, energy research director at ICIS China.

Shell Refining's Port Dickson has a capacity of 156,000 bpd, twice that of Hengyuan, but it is running at a heavy loss while confronted with a substantial investment needed for a future quality upgrade.

Shell Malaysia was established in 1960 and suffered losses mostly due to the global crude price plunges, the analyst said.

On the other hand, the purchase could well enable the Shandong-based refiner－which has been able to run a refinery at a lower cost－to deal with its overcapacity while making its first move with an overseas acquisition, accelerating its global moves to cash in on business opportunities arising from low crude prices, she said.

China's private refiners need to be more internationalized if they want to grow stronger, the analyst added.

Wang Youde, chairman of Hengyuan, said: "Many Chinese private refiners are eager to gain overseas resources, but they are not confident due to limited resources at home and abroad and difficulty in getting financing from banks."

"However, compared with the State-owned enterprises, we are more flexible in our market and efficient in decision-making."

According to Wang, the acquisition enables Hengyuan to have an overseas sales platform as Shell Refining sees 90 percent of its oil products consumed within Malaysia.

"For Malaysia, which sees supply of refined oil products falling short of demand, Hengyuan could import its petroleum products in the future once it got the refined oil export qualifications," he said.