PLATTS INTERVIEW: China's Brightoil Makes Push to Become Top Trading House

China's Brightoil Petroleum, traditionally a bunker fuel trader, is looking to expand and diversify its business with the aim of becoming a top global petroleum trading house in one to two years.

The company is planning to diversify into crude oil trading, selling mainly to China's state-run oil companies, and expand its storage facilities and bunkering segment, Brightoil's billionaire chairman, Raymond Sit Kwong Lam, told Platts in an interview on Wednesday.

"Margins from crude oil trading are much better than in bunkers, which involves too many operating costs such as storage, blending and port fees," Sit said. "Crude trading is on big volumes and after a year or two, we can become one of the biggest trading houses in the world."

"We can sell to many countries, but China will be [our] biggest buyer. As a Chinese company we receive a lot of national support," he said.
 
Brightoil established a crude trading desk in mid-2012 with six traders, including veterans from Chinese trading house Unipec, oil major Shell and India's Reliance Industries Limited.

Sit said the company has started trading Oman crude, but according to trading sources, it has also been moving Russian ESPO crude cargoes.

Brightoil is looking across the globe for crude supplies, including the Middle East, North and West Africa, Latin America and Asia, Sit said.

Sit said the company plans to start a chemicals trading desk next year, starting with five traders, focusing primarily on selling products like naphtha and ethylene into China. The plan is to have about 50% of its trading business focused on crude oil, 30% on fuel oil, and the remaining 20% on chemicals, Sit said.

 ON THE PATH OF STRATEGIC REFORM

 Brightoil last week announced a strategic reform of its international fuel oil trading and bunkering business as well as a shift in its trading strategy.

The Hong Kong-listed company earlier this month sounded a warning that it had recorded a "significant loss" for the July-September quarter, based on a preliminary assessment by management.

Poor margins due to the "depressed shipping industry and decreasing bunker demand" had led to an adjusted gross loss, which included paper positions, the company said.

The difficult quarter came on the heels of a 76% year-on-year slide in Brightoil's net profit for the fiscal year ended June 30, 2012 to HK$305.72 million ($39.4 million).

Sit started a reshuffle of his trading teams as early as June.

Quek Chin Thean, Brightoil's Singapore-based chief executive of fuel oil trading and bunkering, left the company earlier this month. He had joined Brightoil in 2010, bringing with him a team of traders from BP. At least three of those traders have left in recent months.

Sit's controversial en masse hiring of the BP traders resulted in the oil major taking Brightoil to court for poaching its staff. The case was eventually settled out of court but the controversy lasted months and kept Brightoil's name in the spotlight.

The team from BP was instrumental in catapulting Brightoil to the second largest bunker supplier by volume in the Singapore market by 2011, up from 34th place the previous year, according to a listing from the Maritime and Port Authority of Singapore.

That year, Brightoil's fuel oil team accounted for 14% of the 180 CST and 380 CST fuel oil cargoes traded in the Platts Market on Close assessment process in Singapore, amounting to 1.747 million mt. That placed Brightoil at third place behind Hin Leong and BP in terms of MOC volumes.

In the first half of this year, Brightoil was the largest trader in the Platts fuel oil MOC in Singapore. Year to date, the company has traded 2.125 million mt of 180 CST and 380 CST cargoes, although most of the volumes were done in the first quarter.

FOCUS ON CHINA

Sit said in the interview that Quek's departure and the restructuring was "typical" of any poorly-performing company, indicating that a further shake-up could be expected before the year is out.

"Previously we were too focused just on fuel oil trading in Singapore, but after the reshuffle, I want to focus on global expansion," Sit said.

"What we need now is net profit, not sales volumes. From a long-term perspective, we decided to start reducing our risk to the fuel oil business from earlier this year," he said.

Still the company is ultimately aiming to expand its global bunker team and will likely add 50 to 60 new staff in the next two to three months. It is also boosting its storage in Singapore, and anticipates a 20% increase in its leased capacity at the Helios, Horizon and Universal terminals by January.

Sit acknowledged that the former trading team from BP did boost the Brightoil brand name in Singapore, but added that there had been too much focus on trading in Singapore and too little development of the China market.

Market sources in China have said that Brightoil's bunker sales volumes are likely to come in significantly lower this year.

But Sit expects the company's two new storage projects in Zhoushan, Zhejiang province, and Dalian, Liaoning province, to boost its bunker business significantly in the future.

It will have 3.16 million mt of oil products storage in Zhoushan, where first phase of commercial operations will start in 2014. Another 7.5 million mt of capacity is expected online at Dalian by 2015, he said.

In addition, Brightoil plans to expand its barge fleet in China from 16 currently to around 30 next year and 60 by the first half of 2015. Its fifth VLCC is also on track to be delivered by March next year and there are plans to expand the fleet by another 20 VLCCs, Sit said.

"Our China bunkering business should expand significantly by next year. Once we have VLCCs delivering straight into our Zhoushan storage facility, our costs will be on par with those in Singapore ... and we can be much more competitive in China," he said.

The company currently uses medium-range tankers to deliver fuel oil to China, which add about Yuan 6-7/mt ($1/mt) in costs compared to VLCCs, Sit said.

Brightoil is also moving into upstream production. It currently has stakes in two onshore gas blocks in the Tarim in China's Xinjiang province. Gas sales from the Dina gas field are currently over 1 million cubic meters/d while the Tuzi block is expected to start producing mid-2013, Sit said.

Ultimately about three-quarters of the company's business will be focused on the upstream, helping to generate profit, while sales volumes will come from downstream trading, said Sit. It is evaluating other upstream opportunities within and outside China, including shallow-water prospects, he said.

MR. BRIGHTOIL

Sit, 44, is co-founder and chairman of Brightoil but also owns other companies involved in fuel retail marketing and bunker vessel operations. He is also a member of the highly influential political advisory body, the Chinese People's Political Consultative Conference, according to Forbes magazine.

According to Forbes, Sit is No. 59 on the China Rich List with a net worth of about $1.41 billion.

He has been described by some market watchers as eccentric and has a personal bodyguard. Former employees say he has a hands-on approach and takes a keen interest in the business "at every level".

Sit, who is addressed simply as "chairman" by his employees, is mostly based in Hong Kong. But he also has a sizable wood-panelled office in Singapore, with sweeping views of the sea. The walls feature a massive China flag and Brightoil logo, and the office comes complete with thumbprint-activated access, a bar and personal bartender.

Chinese traditions and beliefs also play a central role in the way he does business, including the practice of geomancy or feng shui when interviewing potential employees, market sources say.

"Either way, with the new sweeping changes that Brightoil is now implementing, it should remain an interesting one to watch," said one Singapore-based source.