NZ Refining sees profit bounceback at full year
By Pattrick Smellie
Feb. 20 (BusinessDesk) - NZ Refining, operator of New Zealand's only oil refinery, turned to an annual profit, from a
loss a year earlier, as cost-savings initiatives and improved refining margins combined to overcome what chairman David
Jackson said had been "an extremely difficult operating environment."
The Whangarei-based company reported net profit of $10 million in the year ended Dec. 31, turning around both a
first-half loss and a $5 million loss in the previous full financial year, it said in a statement.
"A combination of 'self-help', an excellent operational performance in the second half and an improving business
environment" drove the turnaround in what Jackson said was always expected to be a volatile year and was "triggered by
the decline in crude oil prices."
The fall in global oil prices during the second half to below US$50 a barrel was a major factor in the refinery
achieving average refining margins of US$8.24 a barrel, including the highest margins for five years in the months of
November and December, at US$9.98 a barrel.
That was in stark contrast to historically low average refining margins of US$1.66 a barrel in the first half, when
special arrangements with the refinery's four cornerstone shareholders - BP, Mobil, Chevron, and Z Energy - kicked in to
support revenues by $36 million in only the second time the so-called "pro rata floor payment" system had been invoked
since its establishment in 1995.
The margins revival in the second half of the year saw that $36 million support repaid within the financial year.
Average refining margins across the year were US$4.96 per barrel, compared with US$4.58 in the previous year.
"The healthier refining margins are a welcome relief, though it remains to be seen how long the high margins that
emerged in late 2014 can be sustained," Jackson said. Lower crude oil prices had assisted the result and while there
were signs of reduced global production, which could see oil prices recover, "market expectations are that a
corresponding return to higher crude prices will take time to eventuate."
A two month shutdown of processing facilities in the first half of the year saw total throughput of 39.7 million
barrels, down on the previous year's 40.6 million. However, total operating revenue, at $233.0 million, was up almost
$10 million on the previous year's total of $223.2 million. Meanwhile, cost-savings across materials, staff and
contractor payments, and administration costs helped reduce total expenses from $228.8 million in 2013 to $216.5 million
in the latest year. That produced earnings before interest and tax of $16.5 million, compared with a $5.6 million Ebit
loss the previous year.
The company achieved $10 million in savings, $3 million better than it had projected from a combination of lasting and
one-off initiatives, Jackson said.
However, directors declared no final dividend, meaning shareholders will receive no dividends for the 2014 financial
year as the focus remains on completing the $363 million Te Mahi Hou upgrade project, which the company says is on time
and on budget, with commissioning on track for December this year.
Jackson gave no guidance for earnings in the current financial year but said directors were "confident that the
refinery's strong cash generating ability ... sets a solid platform for the company to complete Te Mahi Hou and to
continue to explore other attractive and profitable, future growth opportunities."
Shares in NZ Refining last traded at $2.69, and have risen 22 percent since the start of the year.
(BusinessDesk)