Second-half loss looms for NZ's big refiner

The Marsden Point oil refinery. Photo / Northern Advocate

The New Zealand Refining Co's interim profit slid by 2.8 per cent and it expects to operate at a loss for the next six months.

The strong New Zealand dollar and the impact of two planned shutdowns would put pressure on the company's cashflows, the company said. It won't pay an interim dividend, which last year was 15c a share.

The cost of a plant upgrade had also blown out by about $18 million.

NZ Refining says margins were half of what they were last year - hurt by slowing demand for transport fuels at the same time as extra refining capacity coming on-stream around the world.

It reported a $52.5 million profit after tax in the six months to June 30 and said the annual result would be less than this.

"With a relatively strong New Zealand dollar, continuing pressure on margins and our planned four week shutdown in September, we therefore expect that in the second half of the year the company will operate at a loss. Full year profit would therefore be less than this half year result," chairman David Jackson said.

"The worldwide supply of finished product is not something we can influence and refining margins will only recover as the supply-demand imbalances correct."

Chief executive Ken Rivers said with uncertainty over margins, it was not possible to forecast how badly the second half would be hit.

The $52.5 million profit to June 30 was achieved on operating revenue of $182.44 million, down from $182.75 million last year.

Profit before income tax was $75.11 million, down from $77.17 million in the same period last year.

The refinery processed 18.6 million barrels in the first six months of the year at an average gross refining margin of US$6.60 ($10.03) a barrel. Annual throughput is expected to be 3.7 per cent down on last year as a result of two planned shutdowns.

The company has traditionally benefited from processing cheaper, heavier crudes, which attracted premium margins. However, during the last six months there had been a significant change in crude values with those heavy, sour crude oils trading at a much smaller discount.

Rivers said a key part of the company's business plan was the Point Forward expansion project, aimed at reducing reliance on imported residue.

The cost of the project was expected to be 10 per cent above the original budget of $180 million. Rivers said this was due to cost pressure during the recent global refinery boom.

He said he was aware of speculation over ownership of the company, controlled by Shell, Exxon Mobil, BP and Chevron. Only Shell has publicly said it was considering selling its stake.

"Would it surprise me that major companies are doing similar reviews? No," Rivers said.

There has also been speculation that US refiner Valero may be considering buying in but nobody had been doing due diligence, he said.

"If you hear anything firm, do let me know."

NZ Refining closed down 40c, or 5.8 per cent, at $6.50.

UNDER PRESSURE
* NZ Refining supplies more than 70 per cent of the country's refined fuels.
* Margins are under pressure because of the high NZ dollar, reduced demand, a surplus of global refining capacity and a change in the type of crudes it had been processing.
* Costs of a plant upgrade have blown out by $18 million.