Eneos' global ambitions are tested by the Japanese oil giant.

Eneos Holdings is a top Japanese refiner, with a large cash reserve and declining domestic demand. It's currently expanding its overseas footprint and testing its ability of managing assets and diversifying revenue sources.

Eneos is looking to expand its fuel business, as it believes that diversification in the core fuel sector will be more profitable than its previous loss-making venture into renewable energy.

In May, it announced its $2 billion plus purchase of Chevron’s downstream assets across Asia. This included a 50% stake of Singapore Refining Company which operates a refinery that can process 290,000 barrels per day. This deal aims to capitalize on the growth of Southeast Asian and Australian markets and expand its marketing, trading and supply network.

Analysts say that Eneos announced in August it would purchase the U.S. Butadiene manufacturer TPC Holdings, for around 200 billion yen (1.25 billion dollars), making it the No. 1 producer of butadiene in the world. The world's No. 3 producer of butadiene, a vital raw material for?synthetic plastics and rubbers.

Back to Basics

Eneos can boost its trading volume and capture more value by expanding its refining and storage footprint outside Japan.

Masahiro Tanahka, Chief Financial Officer, said: "We've never been able to trade on a scale that was commensurate to our size before, but this time we're going make the most out of it."

Analysts say that despite its size, Japanese rival Idemitsu?Kosan generates much greater profits through asset-backed trading. This presents an opportunity for Eneos, if it can leverage its expanded portfolio.

Eneos, as it expands beyond Japan, will be faced with a more flexible and competitive trading environment in Singapore, according to two executives from the energy hub. The executives did not wish to be identified publicly as they were not authorized to speak with the media.

One trader said that the deal would 'help Eneos diversify its crude purchase,' as Singapore refineries use a wider variety of grades than Japan refineries. Due to its reliance on Middle Eastern crude oil, the country was exposed to disruptions during the U.S. and Israeli war against Iran.

Eneos will purchase the downstream fuels, lubricants, and lubricants businesses of the U.S. giant, Chevron, in Singapore, Malaysia the Philippines, Vietnam, and Indonesia, under the Caltex name, as well as Australia. Eneos aims to generate about $250 million operating profit by fiscal 2030 from the new assets.

Eneos is expanding as oil companies across the globe redirect their capital to conventional energy, after prioritising investments in decarbonisation. They are also shedding refining assets. Chevron sold its Singapore refinery stake following Shell's last-year sale of the Bukom refinery.

Eneos will spend 200 billion yen in 2022 to acquire Japan Renewable Energy. However, its renewables division has been unprofitable for the last two years.

While traditionally low-margin refinery?has become much more profitable due to disruptions caused both by the Middle East war and Ukraine's retaliatory attack on Russian energy infrastructure.

The ultimate verdict depends on the execution and whether the company is able to build global capabilities, and achieve the trading and operational synergies expected," said Jefferies Equity Analyst Thanh Ha Pham.

More acquisitions are likely

Tanaka stated last month that Eneos has about 300 billion Japanese yen set aside for investment in its "three-year plan" through March 2028. He said this could rise after the initial public offering last year of JX Advanced Metals, and Eneos subsequent sale of "additional" shares that generated about 640 bn yen.

He said that "as we have more financial flexibility, there's a chance the budget could increase."

Chevron's deal with Eneos will almost double its overseas revenue share from 16% to 30%. The company's goal is to increase that figure to 50% by 2030. Therefore, it is unlikely that the Chevron deal will be Eneos’?last major foreign investment.

Eneos's medium-term strategy includes gas development. Tanaka added that upstream natural gas project in Southeast Asia remains a potential investment target, as well as the expansion of other businesses and petroleum in the region.

Eneos announced in April that it would purchase a 10% stake of Malaysia LNG Tiga, a Petronas company.

Tanaka stated that "Further M&A is likely to be the primary growth engine."

(source: Reuters)