Z Energy agrees to plan to turn Refining NZ into a terminal

Z Energy has agreed to Refining NZ's plan to turn the refinery into a terminal. Photo / Northern Advocate

Fuel distributor Z Energy said it had agreed in principle to terms offered by Refining NZ to transition the Marsden Point refinery to an import terminal system.

The in-principle agreement is non-binding and contingent on several conditions including Refining NZ satisfying lender requirements as well as the completion of a binding terminal services agreement with all users Z Energy said.

Final approval of the deal will be required by the independent directors and shareholders of Refining NZ.

"Z will work with Refining NZ with the objective of securing final approval in the third quarter of 2021," Z Energy, which has a 15 per cent stake in Refining NZ, said.

Refining NZ shares gained 7 per cent to 60c on the news. Z Energy was up 0.8 per cent at $2.64 at 1.30pm.

As it stands, Refining NZ operates 24 hours a day, seven days a week, 365 days a year processing a wide range of crude oil types to produce premium and regular petrol, diesel, jet fuel, fuel oil, carbon dioxide and sulphur.

The refinery was significantly upgraded and expanded in the 1980s.

Further investment since 2005 has lifted capability further with around $735m invested in expansion projects, including the $365m Te Mahi Hou project which replaced a 1960s semi-regeneration platformer with a CCR (Continuous Catalyst Regeneration Platformer).

The refinery produces around 58 per cent of New Zealand's petrol demand, around 85 per cent of its jet fuel demand and around 67 per cent of its diesel demand, according to its website.

Refining NZ said the agreement reached with Z Energy - its biggest customer -
follows a similar agreement reached with BP in February.

Terms of the deal would include a combination of shared annual fixed access fees and variable throughput fees linked to actual volumes – which Refining NZ estimates would result in average fees of about $95m during the initial term, and includes a take-or-pay commitment of $100m a year for the first 36 months, $90m a year for the subsequent 36 months, and then stepping down for subsequent periods.

Based on the in-principle agreements reached with BP and Z Energy, the company will now prepare for a shareholder vote both on the major transaction and change in business model, and on the proposed customer agreements as a related party transaction, Refining NZ said.

Today's moves follow a strategic review.

Refining NZ chair Simon Allen said the review had focused on securing fair value for its infrastructure.

"The import terminal operation would utilise our highly strategic infrastructure to receive, store and distribute transport fuels primarily to the Northland and Auckland markets safely, reliably, and efficiently," he said in a statement.

The proposed long-term agreements for the import terminal would result in significantly more stable earnings compared with the inherent volatility of refining and enable the company to deliver through the cycle returns to shareholders, he said.

About 43 per cent of Refining NZ is owned by its three customers, BP, ExxonMobil and Z Energy.