NZ Refining shares see minor slide after dirty-diesel crisis

Friday 1st June 2001

MARSDEN POINT: Some diesel stocks are being recalled to the refinery, where a different refining process has been used since last Friday

By Chris Hutching

New Zealand Refining Company chairman Ian Farrant said yesterday that the financial effect on the company from the contaminated diesel crisis should be minor.

Shareholders remained calm with only a 3% slide in the company's share price on thinly traded volumes mid-week sending the share price down from $16.90 to $15.91.

Mr Farrant said the company and its board of directors were facing a challenging period but most shareholders understood that NZ Refining was a tolling operation, refining the product supplied to it by oil companies who then distributed it.

The crisis is every company's nightmare and a problem that NZ Refining and its new shareholder Emerald Capital, represented by director Geoff Cumming, does not need.

Chairman Mr Farrant has warned shareholders over the past two years of the pressure on margins at the Marsden Point refinery from direct imports.

The low New Zealand currency worked in the company's favour last year but since February margins have started to decline and are forecast to decline in the long term.

Demand has also fallen recently due to rising crude oil prices.

The company has sought to reduce costs, laying off 30 staff and striking a maintenance agreement with international contractor Transfield Worley (NZ). Significant annual savings are expected from this partnership.

Mr Farrant declined to discuss where liabilities might fall but the logical parties would include the supplier of the faulty anti-freezing agent believed to be responsible, the four refinery customers BP, Caltex , Mobil and Shell, and possibly NZ Refining itself, which supplies nearly 90% of the nation's diesel.

NZ Refining has offered to pay the cost of replacement filters, which are being snapped up like hot cakes by commercial vehicle operators. The effects of the contaminated diesel have been unevenly felt.

Some vehicle fleets such as the fire engines of the Christchurch Airport Fire Service and contractors Fulton Hogan, with 1800 vehicles, have been virtually unaffected. But many tourist coach fleets have been forced to replace filters or drain tanks. Most affected are machines with poorly maintained oil filters and smaller engines without fine enough filters.

A filter of 0.8 microns is required to trap the additive and adequately protect engines from adverse effects. But in the interests of safety, particularly for marine operators, the company had to take the strongest measures and had informed the government last week, Mr Farrant said.

"All our energies and that of the main oil companies are focused on fixing the problem and reassuring the public."

Some diesel stocks are being recalled to Marsden Point, where a different refining process has been used since last Friday. NZ Refining is also testing the affected diesel with the aim of eliminating the filter blocking tendencies. But the company is hoping the amount of fuel it has to recall may simply diminish as it is used up because in some cases there are no spare tanks available for the new product.

NZ Refining and the oil companies involved have set up a Wellington-based damage-control task force. The company reported its full-year after-tax profit for the year ended December 31, 2000 at $69 million on revenue of $297 million. Directors declared a final dividend of $2 per share, making a total of $2.50 for the year, fully imputed.

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