Amended – 2019 Results Announcement

REFINING NZ
FULL YEAR ANNOUNCEMENT 2019
1
FULL YEAR
ANNOUNCEMENT
HIGHLIGHTS
–
Net profit after tax of $4.2 million achieved in a
challenging, low margin environment in the
second half of 2019.
– Gross refining margin (GRM) averaged
USD 5.34 per barrel (2018: USD 6.31 per barrel).
– A confluence of negative influences led to a low margin
e
nvironment and resulted in the Refinery's GRM falling
to USD 2.62 per barrel for the last two months of 2019.
– O
utstanding personal and process safety performance
with a significantly improved lost time injury frequency
of 0.1 3 (2018: 0.48)
1
.
COMMENTARY
Refining NZ has reported a Net Profit after Tax (NPAT)
of $4.2 million (2018: $30 million) for the year ended
31 December 2019.
Managing Director, Paul Zealand described the result as
disappointing given how well the business has performed
operationally, and that the confluence of market factors have
resulted in an unsustainably low margin environment in the
latter part of the year.
“The Gross Refining Margin averaged USD 5.34 for the year
(2018: USD 6.31 per barrel), weaker than expected global
refining margins, the result of a slowdown in the global economy,
compounded by US sanctions on Chinese crude tanker
companies, and additional refining capacity coming online
earlier than expected.”
“Demand in the Asia Pacific region was negatively impacted by
a glut of diesel and gasoline exports from China and India.
Crude freight rates increased from October while the expected
lift in diesel margins in the lead up to MARPOL did not
– Excellent operational performance. Operational
availability on the Refinery’s processing units was
at 99.7%. The utilisation rate on the Hydrocracker
unit was at its highest in ten years.
–
Crude throughput of 42.7 million barrels was up
around 6% on the previous year (2018:40.4 million
barrels), helped by there being no planned
maintenance Turnarounds in 2019.
–
Highest annual crude and condensate intake,
the highest annual refined product make
and customer product offtakes.
– Strong volume delivery on the RAP with annual
throughput at 20.8 million barrels, the second
highest on record.
materialise as expert market commentators had forecast,
though High Sulphur Fuel Oil margins fell strongly.”
Mr Zealand said that given the headwinds in the market,
including the impact of Coronavirus on supply and demand, the
low margin environment will likely remain into the early part of
2
020.
“Expert market commentators are expecting that refining
margins will improve in the near-to-mid-term, helped by
improving US/China trade relations. International energy
consulting company Facts Global Energy (FGE) is also expecting
diesel margins to lift as MARPOL compliant fuel demand
increases, which will increase hydrocracking margins,” he said.
M
r Zealand confirmed that the result aligns with the Company’s
profit matrix issued in February 2019 taking into account the
$
3.8 million NPAT impact of the Transpower outage in
November. The FY 2019 result was assisted by a favourable
USD/ NZD exchange rate which averaged USD 0.66
f
or the year (2018: USD 0.69).
1
Per 200,000 hours worked.

REFINING NZ
FULL YEAR ANNOUNCEMENT 2019
2
RESPONDI NG TO
LOW REFINING MARGINS
Mr Zealand said that the management team has been working
with the Board on a comprehensive plan to respond to the
weaker
than expected margin environment, with the objectives
of securing long term value for shareholders and deriving
maximum value from the Company’s significant infrastructure
assets.
“Given the uncertainties the refining sector is facing, we are
working to minimise cash spend and increase revenue. At the
same time we are looking at all tactical and strategic options
available to enable Refining NZ to stay at the core of the fuel
supply
chain in New Zealand.”
“Success will enable the Company to continue to add
resilience to the country’s fuel supply chain by optimising
our
essential infrastructure assets (refining, storage and
distribution) at Marsden Point .”
“Looking ahead, our substantial infrastructure investment and
deep technical capability means we will have a critical role in
producing the transport fuels New Zealand needs now, and for
a
future low carbon economy,” he said.
SAFETY
Mr Zealand described the Refinery’s personal and process
s
afety performance in 2019 as outstanding.
The lost time injury frequency rate (LTIF) at 0.13 was a
marked improvement on the prior year (2018: 0.48) with only
o
ne lost time injury during 2019. This reflects the success of
our safety culture programme E Tu Tangata (Stand in the Gap)
rolled out across the Refinery via a series of Hauora Korero
(safety
talks) and Hauora Hikoi (safety walks). The Refinery’s
process safety performance was also outstanding in 2019
with no significant process safety incidents (2018: 5).
OPERATIONAL PERFORMANCE
Operational availability on the Refinery’s processing units was
at 99.7% with the utilisation rate on the Hydrocracker unit
at its highest in the past decade. This positive performance
was achieved despite a Transpower outage in the region
on the 27th of November, which saw a total loss of power
to the Refinery.
Several production records were achieved on the back
of reliable refining operations including the highest
annual crude and condensate intake, the highest
annual refined product make and customer product
offtakes. Operational availability on the Refinery to
Auckland pipeline was greater than 99% with the
annual pipeline throughput at 20.8 million barrels,
the second highest on record.
Mr Zealand confirmed that operating and capital costs had
remained tightly controlled during the year as Refinery
operations came under sustained pressure from higher
electricity and gas prices.
“Ongoing supply issues with the Pohokura offshore natural
gas field meant that access to natural gas supplies had
to be carefully managed during the year. Refining NZ has
subsequently contracted all of its natural gas requirements
for the next three years with a credible market participant
with diverse supply options.”
MARPOL
The Refinery has worked with its customers to manage the
introduction of 0.5% low sulphur fuel oil for shipping under
the 2020 IMO MARPOL regulations which came into force
on 1 January, 2020.
Said Zealand: “We are broadening our crude diet to minimise
the MARPOL impact on our fuel oil make. Four new, lower
cost crudes have been successfully tested and forward crude
procurement decisions by our customers are already being
made as a result. Refining these new crudes will lower crude
costs overall and can be expected to improve the Refinery’s
GRM from Q2 2020 onwards.”

REFINING NZ
FULL YEAR ANNOUNCEMENT 2019
3
2020 TURNAROUND
Preparations for planned maintenance Turnarounds
in March and April are well advanced with the preparedness
benchmarked as “top quartile” by recognised industry project/
Turnaround specialists.
GOVERNMENT INQUIRY
In September the Government Inquiry into the 2017 pipeline
outage and improving the resilience of the fuel supply into the
Auckland region, concluded that Refining NZ maintained and
operated the RAP properly and in keeping with all legal
requirements and standard industry practice.
Said Zealand: “Given our essential role in the transport fuels
supply chain, we were also encouraged by the Inquiry noting
that Refining NZ is working to make timely investment
decisions and that we have a clear goal of having new
infrastructure in place shortly before it is needed to meet
demand, rather than just in time or too late.”
“We continue to push for further legislative protections for the
pipeline and are working with the Government and industry
on ways to further improve the resilience of Auckland’s
fuel supply chain.”
EMISSIONS TRADING SCHEME
In 2019 the Government confirmed that Refining NZ will
be brought in to the New Zealand Emissions Trading Scheme
(NZETS) as an Energy Intensive Trade Exposed (EITE)
business with an allocation of carbon units after the
Negotiated Greenhouse Agreement we have with the
Crown expires at the end of 2022.
Said Zealand: “This is an imperative for the Company and the
country, as we transition to a future based on the production
of lower carbon fuels. At the same time, we are mindful of the
potential disruption from further legislative reforms to the
NZETS currently before Parliament, in particular, a recently
announced review of unit allocation to EITE businesses.”
DIVIDEND
Given the challenging low margin environment the Company
is operating in, the Company’s Directors have resolved that
it is prudent to not pay a final dividend to shareholders.
With an interim dividend of two cents paid in September,
the total dividend payment for the year is two cents.
OUTLO
OK
Mr Zealand said that the poor margin situation at the end of
2019
has continued into the first two months of 2020 with
refining margins below the processing fee floor, exacerbated
by
the ongoing impact of Coronavirus on regional supply and
demand.
“Exactly how the supply adjusts to the full effect of
Coronavirus, the requirements of MARPOL, and other global
factors,
remains to be seen. This will likely result in ongoing
margin volatility as demand returns, stocks are released and
export refining
capacity comes back on stream, particularly
in Chi na.”
“Expert commentator FGE, is forecasting global oil demand
to rebound in 2H 2020 & 1H 2021, driven first and foremost,
by
growth in China.”
“Our team at Marsden Point remains focused on the safe
and reliable performance of our refining operations and the
multi-fuel pipeline to Auckland, as well as reducing our
operational
and capital spending in 2020. These actions
should ensure that the Refinery is well placed to benefit
when
global refining margins improve.”
FURTHER
INFORMATION
Greg McNeill,
Communications and External Affairs Manager
T:
094325115 M: 021 873623
E: greg.mcneill@refiningnz.com