Cosmo Oil to Work Hard to Ensure the Stable Supply of Energy and to Enhance the Earnings Base
The Cosmo Oil Group is working on rationalization and company-wide changes to achieve the goals of the Fourth Consolidated Medium-Term Management Plan (FY 2010 12). We will make every effort to ensure the stable supply of energy, while enhancing the earnings base for the oil refining and marketing businesses and increasing profit in the oil exploration and production business, with the goal of achieving sustainable growth.
Business Review of FY 2010 and Future Management Policy
Aim at Keeping the Supply-Demand Balance Appropriate for the Petroleum Business and Enhancing Profitability of the Oil Exploration and Production Business
In FY 2010, ended March 31, 2011, improved margins due to a balance between supply and demand for petroleum products and the promotion of rationalization allowed Cosmo Oil Group to achieve consolidated operating income of \104.1billion.
For FY 2011, ending March 31, 2012, increased demand is expected for diesel fuel and heavy fuel oil C to meet the demand for reconstruction from the March 11 earthquake, while demand for gasoline and kerosene is forecast to fall, since an economic recession is anticipated. The Company will utilize the coker at the Sakai Refinery, which went on stream full scale in October 2010. At the same time, we will enhance the earnings base by building a supply-demand environment appropriate for the petroleum business and by expanding the oil exploration and production business. Profit gained through implementation of these programs will be used to reduce interest-bearing debts to enhance the financial base, while rigorously selecting projects for capital spending. And we plan to continue stable dividend payments to our shareholders.
Rationalization Efforts
The Entire Cosmo Oil Group Is Dedicated to Promoting Rationalization and Efficiency.
In FY 2010, a reduction in sales promotion brought by the impact of the March 11 earthquake and other factors resulted in \15.7 billion in rationalization versus the goal of \15 billion set by the rationalization plan.
We will continue our rationalization efforts in FY 2011 but implementation of part of these programs may be delayed due to the impact of the earthquake. Cumulative cost reductions from FY 2010 to FY 2011 are expected to account for \16.6 billion (as of March 31, 2012). The overall goal for rationalization for the three years up to FY 2012 is \25 billion including cost reductions in sales and marketing, and administrative and other back-office functions, and affiliated companies.
Efforts of the Oil Refining and Marketing Business Segment
Make Maximum Use of the Coker Facility at the Sakai Refinery to Increase Profits
In the oil market today, there are widening gaps in prices between light distillate products, such as gasoline, kerosene, jet fuel, and diesel fuel, and heavy distillate products, such as heavy fuel oil C (light-heavy distillate product price gaps), which is accompanied by widening price gaps between light crude oil and heavy crude oil (heavy-light crude oil price gaps).
The Company will make the maximum use of the coker at the Sakai Refinery so that we can use lower-cost heavy crude oil to produce high value-added jet fuel and diesel fuel to enhance profitability in the refining business.
We will also make every effort to build a supply-demand environment appropriate for the petroleum product sales business to ensure profitability.
Enhance Profits for the Profitable Petroleum Business Segment
- Increase earnings through maximum use of the coker unit
- Wider heavy-lighter crude oil price gaps as light-heavy distillate product price gaps are becoming wider.
- As the year turns into FY2011, recovery of the business environment is being made toward a more profitable one.
- Build an appropriate supply-demand environment to ensure stable margins
Efforts of the Oil Exploration and Production Business Segment
Continue Stable Production in Abu Dhabi and Start New Production in the A-Structure South Oilfield in Qatar.
Political unrest in the Middle East and economic growth in emerging countries are expected to keep crude oil prices high into the future. The Abu Dhabi Emirate is the core country partner for Cosmo Oil in pursuit of crude oil exploration and production, and Abu Dhabi Oil Co., Ltd. in February 2011 signed an agreement with the emirate to extend for 30 years concession rights in three oilfields currently operational and set to go into production in the future.
Abu Dhabi Oil Co., Ltd. acquired additional concession rights at the same time in the Hail oilfield. This new oilfield is expected to produce as much volume of crude oil as the three existing oilfields produce and it is located so close to the three currently operational fields that the existing production facilities can be used, bringing investment under control for highly profitable production.
In April 2011 in Qatar, Qatar Petroleum Development Co., Ltd. started production in the A-Structure South oilfield, which is expected to increase production volume by 3,000 barrels a day or so. In FY 2011 and onward, we will enjoy the benefit of high crude oil prices to the maximum extent to increase profitability for this business segment.
Enhance Profits for the Profitable Oil Exploration and Production Business
- Abu Dhabi Oil Co., Ltd.
- Continue stable production (24,000BD/day)
- Signed an agreement to renew rights to three oil fields currently under operations by additional 30 years
- Signed an agreement on 30-year concession interest to the new "Hail" oil field
- Qatar Petroleum Development Co., Ltd.
- Increase production volume (6000→9000BD) by starting crude oil production in the A-Structure South oil field
Efforts of the Petrochemical Business Segment
Promote the Business for Paraxylene for Which Demand Will Increase in Emerging Countries
The demand for paraxylene (PX), a raw material used to make polyester and PET bottle products, is increasing in emerging countries which are experiencing economic and population growth. Cosmo Oil jointly established a joint venture called HC Petrochem Co., Ltd. (HCP) with Hyundai Oilbank Co., Ltd. (HDO) based in the Republic of Korea (ROK) to go into the PX business. HCP plans to build a new PX production unit capable of producing 800,000 tonnes per year in the ROK, where the new unit and the existing facility will be combined to create the world’s largest PX production line with a capacity of 1.18 million tonnes per year in 2013. Timed with this, Cosmo Oil plans to build and complete a new unit for producing mixed xylene (MX), a raw material for PX, at the Yokkaichi Refinery in November 2011. The new unit and the existing production facility will be combined to supply 600,000 tonnes of MX to HCP every year starting from 2013. The expansion of the petrochemical business leads us to address the issue of the lower demand for gasoline in Japan, helping the entire Cosmo Oil Group enhance profitability.
New Business Segment
Grow Wind Power Generation and Other Environmentally Friendly Businesses into the Future Basis for Growth
Wind Power Generation
Cosmo Oil in March 2010 acquired the shares of EcoPower Co., Ltd. to go into the commercial wind power generation market on a full scale. Before the end of FY 2010, we improved the repair and maintenance system for wind turbines to increase the operating ratio to turn the business profitable, which was achieved just one year after the acquisition. As of March 2011, EcoPower is the fourth largest wind power generating company in Japan, operating 130 wind turbines at 25 sites to supply 147,000 Kw of power. We will increase the use of renewable energy to support the power generation business in Japan.
ALA
ALA is an amino acid essential to sustain living organisms. We developed a low-cost large volume production method using a fermentation process to allow us to apply ALA in more fields. We currently sell liquid fertilizers for agriculture and home gardens - inside and outside Japan - while we are developing products, such as cosmetics, technical-grade supplies for health food products, a hair tonic, and pharmaceuticals.
Concentrated Solar Power Generation
Cosmo Oil is currently developing a new concentrated solar power generation technology together with partners, Masdar (Abu Dhabi Future Energy Company), an organization funded by the Abu Dhabi government and Tokyo Institute of Technology. We will review results of the Abu Dhabi demonstration plant experiment for feasibility studies on commercialization.
Solar Power Generation
Cosmo Oil is working on a new technology to manufacture polysilicone (polycrystalline silicon), used to make solar celldevices, at low cost and is developing the manufacturing technology at the research level with an eye toward early commercialization.
