NZ Refining confirms grim profit outlook as margins keep contracting

Thursday 17th December 2009

Decimated refining margins at the country's only oil refinery will push year end profit for the New Zealand Refining Co Ltd down as much as 90% to between $10 million and $20 million in the year to December 31.

Gross Refining Margins in September and October were a mere US$1.16, compared with US$9.35 at the beginning of the year and "there remains considerable uncertainty with respect to our final result", the company said in a statement this morning to the NZX.

"Subject to the refinery operations continuing without major disruption we expect the full year net profit after tax to fall within the NZ$10 million to $20 million range."

Share in NZ Refining fell 2.5% to $3.95 in early trading on the NZX this morning.

The company warned at its half year earnings announcement in August that it was likely to report a loss for the second half, having reported a $52.5 million net profit in the six months to June 30.

Uncertainty about the final result was "due to the way prices for refinery feedstock and products and the exchange rate are set under our processing agreements with customers".

"Refining margins worldwide are under severe pressure and market indicators suggest that negative margins are being experienced by many refineries. The margins realised at NZRC have been very low."

The high New Zealand dollar had further reduced processing fee income.

NZ Refining said the premium earned for producing fuel to meet New Zealand specifications and its position in its home market provided some relief and the floor mechanism in processing agreements guaranteed a minimum refining income of approximately $118 million a year.

"We are in a better position than many of our competitors and expect a modest recovery in margins."

Two scheduled major shutdowns are scheduled at the refinery in April and September next year and hydrocracker catalyst replacement will require "a significant non-discretionary capital spend", which the refinery has adequate bank facilities to cover.

Businesswire.co.nz

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