Refining NZ Operational Update for May/June 2020

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22 July 2020
Refining NZ Operational Update for May/June 2020










COMMENTARY

Refining NZ’s excellent health, safety and environment performance continued in May and June, with no Tier 1
or Tier 2 process safety events or recordable cases, despite the changes made to operations in response to
COVID-19.
New Zealand refined fuel demand increased from April levels as COVID-19 travel and transport restrictions were
eased to Alert Level 2 in mid-May and then to Alert Level 1 in early June. Gasoline and diesel demand recovered
to end the period at circa 95% and 100% respectively of demand compared to the same period last year.
However, jet fuel demand remained low at approximately 35% of prior levels.
Through May and June, as previously signalled, Refining NZ operated the refinery in cyclic mode to produce a
substantially lower output. The Company continued with strategies aimed at minimising jet fuel production
while meeting gasoline and diesel requirements, and refinery throughput was constrained by the jet fuel
demand destruction. Refinery throughput was 3.9 million barrels during May/June, circa 55% compared with
the same period last year, before process units were put on standby from early July to mid-August to balance
fuel supply across the country.
Refinery to Auckland Pipeline (RAP) throughput during May/June was approximately 60% compared to the same
period last year.
Refining NZ has agreed with its customers to operate the refinery in a reduced production mode from August,
when the refinery resumes production, to the end of October.
The GRM improved significantly compared to the prior period to be USD 4.59 per barrel, with an above
average uplift of USD 8.37 per barrel over a weak Singapore Dubai complex margin of USD -3.78 per barrel.
Key contributors to the increased uplift were due to COVID-19 impacts on demand.
HIGHLIGHTS
• Excellent personal and process safety performance through period of changed operating
mode.
• Refinery and Refinery to Auckland pipeline throughput was circa 55% and 60% respectively,
compared with the previous corresponding period, due to the impacts of COVID-19 on
transport fuel demand, with gasoline and diesel recovering close to previous levels by the end
of May.
• Gross Refining Margin (GRM) remained at the Processing Fee floor due to COVID-19 impacts
on New Zealand refined product demand.
• Refining NZ net debt was $250 million as at the end June reflecting cash neutral operations at
the Fee Floor since April 2020.
• Phase 1 of Strategic Review completed, with an update to the market on 25 June. Detailed
planning now underway for a simplified refinery and, in parallel, evaluation of a possible
future staged transition to an import terminal.

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Firstly, significant demand for floating storage caused increases in both crude oil VLCC shipping costs to
Singapore and finished product shipping costs to New Zealand. Secondly, Abu Dhabi crudes processed at the
refinery were heavily discounted relative to Dubai crude.
The Company’s Processing Fee revenue was NZD 23.3 million, with Fee Floor payments by our customers of NZD
3.5 million.
Net debt was circa $250 million at the end of June, reflecting three months of cash neutral operations at the
Fee Floor. The Company continues to plan to operate cash neutral through the balance of the year, when
factoring in the Processing Fee Floor and reduced RAP income.
Refining NZ completed Phase 1 of its Strategic Review and provided a market update on June 25. The
Company is now developing plans to simplify refinery operations and structurally reduce operating costs. In
parallel the Company will continue to evaluate a possible future staged transition to an import terminal.
Refining NZ expects to provide a further update on the Strategic Review process around the end of the third
quarter.

For further information:
Ellie Martel
Government and External Affairs Manager
Ellie.Martel@refiningnz.com
+64 (0)20 4174 7226

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OPERATIONAL DATA



Notes:
1. The information provided in this announcement excludes Revenue from other activities.
2. The Processing Fee results reported in this announcement are subject to change due to post announcement price
updates and independent audit.
3. A five-year history of Throughput, Margins and Processing Fees is attached below.
4. Refer to the explanatory notes/glossary for a definition of terms.
May/JunMay/JunYTDFY
2020201920202019
Health, Safety & Environment
LTI
#
0001
LTIF
#/200,000hrs
--
0.150.13
TRC
#
0002
TRCF
#/200,000hrs
--
0.310.27
Tier I Process Safety Events
#
0000
Tier II Process Safety Events
#
0000
Releases outside of consent
#
0111
Refining
Brent Crude Oil Price
US$/bbl
34.567.639.764.4
Exchange Rate
US$/NZ$
0.630.660.630.66
Operational availability
%
99.099.996.899.7
Unplanned process downtime
%
34.04.616.91.6
Refining throughput
Mbbl
3.876.9515.4342.69
Gross Refining Margin
US$/bbl
4.594.361.825.34
Gross Refining Margin
US$M
20.930.362.7227.9
(including Fee Floor/Margin Cap)
Processing Fee (including Fee Floor/Margin Cap)
US$M
14.621.243.9159.5
Processing fee (including Fee Floor/Margin Cap)
NZ$M
23.332.270.0242.0
Distribution
RAP throughput
Mbbl
2.03.37.520.8

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HISTORICAL INFORMATION - REFINING


Appendix II 2020
20162017201820192020
Ja n/Fe bBa rre l s 000's6,8267,1607,0116,9636,909
RNZ USD GRM pe r ba rre l
1)
7.966.587.544.881.04
Si nga pore Duba i Compl e x GRM4.953.423.37-0.32-1.58
Upl i ft vs . Si nga pore Duba i Compl e x
3)
3.013.164.175.202.62
NZD Proce s s i ng Fe e (mi l l i on)
2)
57.045.950.834.923.0
Ma r/AprBa rre l s 000's7,4715,1406,9587,3124,656
RNZ USD GRM pe r ba rre l
1)
1.849.356.826.630.67
Si nga pore Duba i Compl e x GRM3.183.023.750.750.19
Upl i ft vs . Si nga pore Duba i Compl e x
3)
-1.346.333.075.880.48
NZD Proce s s i ng Fe e (mi l l i on)
2)
14.848.145.850.123.7
Ma y/JunBa rre l s 000's6,8377,7553,9106,9453,867
RNZ USD GRM pe r ba rre l
1)
6.267.630.184.364.59
Si nga pore Duba i Compl e x GRM2.132.902.020.17-3.78
Upl i ft vs . Si nga pore Duba i Compl e x
3)
4.134.73-1.844.198.37
NZD Proce s s i ng Fe e (mi l l i on)
2); 5)
43.358.40.732.223.3
Jul /AugBa rre l s 000's6,8337,5117,6157,419
RNZ USD GRM pe r ba rre l
1)
6.208.876.867.10
Si nga pore Duba i Compl e x GRM1.864.702.573.23
Upl i ft vs . Si nga pore Duba i Compl e x
3)
4.344.174.293.87
NZD Proce s s i ng Fe e (mi l l i on)
2)
41.363.654.356.2
Se pt/OctBa rre l s 000's7,2516,8167,6397,245
RNZ USD GRM pe r ba rre l
1)
7.499.317.096.16
Si nga pore Duba i Compl e x GRM3.184.732.473.55
Upl i ft vs . Si nga pore Duba i Compl e x
3)
4.314.584.622.61
NZD Proce s s i ng Fe e (mi l l i on)
2)
52.562.257.849.3
Nov/De cBa rre l s 000's7,4477,3427,3076,803
RNZ USD GRM pe r ba rre l
1)
9.206.836.532.62
Si nga pore Duba i Compl e x GRM4.193.671.80-1.55
Upl i ft vs . Si nga pore Duba i Compl e x
3)
5.013.164.734.16
NZD Proce s s i ng Fe e (mi l l i on)
2)
67.650.749.219.2
TotalBarrels 000's42,66541,72440,44042,68715,432
USD GRM per barrel
1)
6.478.026.315.341.82
NZD Processing Fee (million)
2)
276.6328.9258.7242.070.0
YTD Cap adjustment
NZD Processing Fee (million)
1)
1) Excl ude s Fe e Fl oor/Ca p a djus tme nt
2) I ncl ude s Fe e Fl oor/Ca p a djus tme nt
3) RNZ upl i ft vs . Si nga pore Duba i Compl e x GRM i s i n USD pe r ba rre l

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EXPLANATORY NOTES/GLOSSARY
LTI (Lost time injuries) and LTIF (Lost time injury frequency)
Lost time injuries refer to fatalities, permanent disabilities or time lost from work.
Lost time injury frequency refers to the number of lost time injuries over a rolling 12-month period, per
200,000 hours worked.
TRC (Total recordable cases) and TRCF (Total recordable case frequency)
Total recordable cases refer to lost time injuries, medical treatment and restricted work cases.
Total recordable case frequency refers to the number of recordable injuries over a rolling 12-month
period, per 200,000 hours worked.
Tier 1 Process Safety Event (API 754)
A tier 1 Process Safety Event (PSE) is an unplanned or uncontrolled release of any material, including
non-toxic and non-flammable, from a process which results in one or more of the following: A LTI
and/or fatality; a fire or explosion resulting in greater than or equal to $25,000 of direct cost to the
company; a release of material greater than the threshold quantities given in Table 1 of API 754 in any
one-hour period; an officially declared community evacuation or community shelter-in-place.
Tier 2 Process Safety Event (API 754)
A tier 2 Process Safety Event (PSE) is an unplanned or uncontrolled release of any material, including
non-toxic and non-flammable, from a process which results in one or more of the following: A
recordable injury; a fire or explosion resulting in greater than or equal to $2,500 of direct cost to the
company; a release of material greater than the threshold quantities given in Table 2 of API 754 in any
one-hour period.
Operational availability
Operational availability is the percent of time available for manufacturing after subtracting maintenance
and regulatory/process downtimes.
Unplanned process downtime
A unit downtime is “planned” if the refinery is aware of and has scheduled that unit outage in the
previous year. Unplanned process downtime is the weighted average of unplanned downtime across
all process units.
Refining throughput
Refining throughput is the volume of feedstock intake, comprising crude oil, residues, natural gas and
blendstock, measured in barrels. One barrel equates to approximately 159 litres.

Turnaround
A scheduled outage of one or more process units, planned well in advance and typically occurring in
cycles of 2 years or more, for the purpose of significant mechanical inspection and repair.

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Gross Refining Margin (excluding Fee Floor/Margin Cap)
The Gross Refining Margin is calculated in USD as the difference between the value of products and the
cost of feedstock for each refining customer. The value of products use Singapore quoted prices
adjusted for New Zealand quality and the cost of importing those products to New Zealand. Feedstocks
are valued using the notional market values adjusted for the cost of getting the feedstock to the
refinery. The Gross Refining Margin incorporates the cost of hydrocarbon used as fuel and incurred as
process losses.
Typically, Refining NZ has an uplift over the Singapore complex margins of around USD 3.00 to 4.00 per
barrel. The value of the uplift varies due to fluctuations in freight rates, product quality premium, crude
market premium and operational performance. Product quality premium are the cost differentials
between products made to New Zealand quality and products made to the quality that applies to
quoted prices in Singapore. Crude market premium are the cost differences between the crude types
actually processed at Refining NZ and Dubai (used as basis for the Singapore complex margins). Refining
NZ’s crude diet comprises of crudes that price off Dubai as well as crudes that price off different
markers such as Brent. The fluctuations of these price markers relative to each other impact the uplift.
Margin Cap/Fee Floor Adjustment
The processing agreements with our customers contain both Floor and Margin Cap clauses, both
effective over a full calendar year.
The Fee Floor is the minimum Processing Fee due, for a calendar year, up to a current maximum of
NZD 140.0 million. If the year-to-date Processing Fee is below the pro-rata Fee Floor, then an interim
pro-rata Fee Floor payment is made by the Customers. Should the Processing Fee exceed the Fee Floor
in future months any pro-rata Fee Floor payments that have been made are repaid to the Customers.
The Margin Cap limits the Gross Refining Margin for each customer to a maximum of USD 9.00 per
barrel over the calendar year. Should the Gross Refining Margin fall below the Cap in future months
any pro-rata Cap reductions that have been made are repaid by the Customers.
The Cap and the Floor are subject to year-to-date adjustments.
Any balance remaining at the end of the year cannot be carried over to the next year.
Processing Fee (after Fee Floor/Margin Cap)
The Processing Fee is 70% of the Gross Refining Margin after any adjustment for the Margin Cap or Fee
Floor. The Processing Fee is paid by our customers in NZD.
RAP throughput
RAP throughput is the volume of refined products, comprising gasoline, jet fuel and diesel that are
delivered via the Refinery to Auckland Pipeline (RAP) to the Wiri oil terminal.