Refining NZ Operational Update for July/August 2020

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21 September 2020

Refining NZ Operational Update for July/August 2020


COMMENTARY

Refining NZ’s excellent health and safety performance continued through July and August, with
no Tier 1 or Tier 2 process safety events or recordable cases. Refining NZ promptly addressed
the causes of two releases outside of consent that occurred.

The refinery was shut down for six weeks during the period in order to help rebalance stocks
across the country, due to the COVID-19 impacts on New Zealand fuel demand. All processing
units have now been safely restarted and are expected to operate in low production mode to
the end of the year.

Refinery to Auckland Pipeline (RAP) throughput was approximately 62% of the previous
corresponding period, reflecting the continuing impact of international border restrictions on jet
demand and the impact of recent COVID-19 lockdown restrictions on Auckland fuel demand.
International markets remain heavily impacted by the effects of COVID-19 with increased global
demand during July and August as lockdown restrictions were eased in many countries, offset by
the ramp-up of exports from China and India causing the Singapore Dubai Complex Margin for

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the July/August period to average US$ -2.46 per barrel. Refining NZ’s GRM uplift over the
Singapore margin was negative due to the temporary shutdown of the refinery.

Processing Fee revenue was NZ$23.7 million, reflecting Fee Floor payments by our customers.
GRM for the two months was US$ -4.18 per barrel reflecting low margins and low production
during the period and the fuel and loss impact of the shutdown and restart of the refinery. In
addition, the Company earned NZ$4.3 million in terminal fees from the import of petrol and
diesel to Marsden Point during the temporary shutdown.

The Company continues to expect Processing Fees to remain at the Fee Floor through 2H 2020,
given Fee Floor payments year to date total NZ$70.4 million (with Processing Fee Revenue
excluding Fee Floor payments of NZ$23.3 million).

Net debt was NZ$249 million at the end of August, reflecting five months of cash neutral
operations at the Fee Floor.

Refining NZ is now in the final stages of planning to simplify refinery operations and structurally
reduce operating costs, in order to extend cash neutral operations in 2021 under a Fee Floor
scenario. The Company remains on track to provide a market update on the simplification plans
in early October.

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

Jul/Aug Jul/Aug YTD FY

2020 2019 2020 2019
Health, Safety &
Environment

LTI
#
0 1 0 1
LTIF
#/200,000hr
s
- -
0.00 0.13
TRC
#
0 1 0 2
TRCF
#/200,000hr
s
- -
0.17 0.27
Tier I Process Safety Events
#
0 0 0 0
Tier II Process Safety Events
#
0 0 0 0
Releases outside of consent
#
2 0 3 1

Refining

Brent Crude Oil Price
US$/bbl
44.1 61.5 40.8 64.4
Exchange Rate
US$/NZ$
0.66 0.66 0.63 0.66
Operational availability
%
99.5 99.8 97.4 99.7
Unplanned process downtime
%
81.2 0.0 33.2 1.6
Refining throughput
Mbbl
1.77 7.42 17.20 42.69
Gross Refining Margin
US$/bbl
-4.18 7.10 1.20 5.34
Gross Refining Margin
US$M
22.3 52.7 85.0 227.9
(including Fee Floor/Margin Cap)

Processing Fee (including Fee
Floor/Margin Cap)
US$M
15.6 36.9 59.5 159.5
Processing fee (including Fee
Floor/Margin Cap)
NZ$M
23.7 56.2 93.7 242.0

Distribution

RAP throughput
Mbbl
2.1 3.4 9.7 20.8

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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's6,8337,5117,6157,4191,766
RNZ USD GRM pe r ba rre l
1)
6.208.876.867.10-4.18
Si nga pore Duba i Compl e x GRM1.864.702.573.23-2.46
Upl i ft vs . Si nga pore Duba i Compl e x
3)
4.344.174.293.87-1.73
NZD Proce s s i ng Fe e (mi l l i on)
2)
41.363.654.356.223.7
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's42,66541,72440,44042,68717,198
USD GRM per barrel
1)
6.478.026.315.341.20
NZD Processing Fee (million)
2)
276.6328.9258.7242.093.7
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.

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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.

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.

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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.