Refining NZ revenue has taken hit with the company posting a half year net loss of $186.3 million.
The Marsden Point refinery says it’s felt the force of COVID-19, weak global refining margins and the lower refinery and pipeline throughputs.
The six month to June 30 result compares to a net loss of $3.5m in the same period the previous year.
Income for the period was $119.1m – down $52.5m (30.6%) on the prior corresponding period due to lower margins and throughput, while adjusted EBITDA was down $35.7m (63.5%) to $20.5m
The refinery continued to operate as an essential service throughout COVID-19 alert levels but saw production down around 50% of normal levels.
“We acted quickly and decisively in response to COVID-19 working in partnership with our customers to manage stocks and ensure reliable supply across the country by operating the plant in rotating mode to reduce refinery production, as well as reducing non-essential activity on-site,” chief executive Naomi James says.
“This mode of operation was unprecedented for the refinery and our ability to operate safely in this changed mode reflects our highly capable workforce and strong operational discipline,” she says.
The refinery has cut planned expenditure for the rest of the year by around $70m and has reset 2020 cash-breakeven to fee floor levels.
Refinery and pipeline throughputs for the six months to June were 27% lower than the same period in 2019 and around 40% lower from the time that the pandemic was declared.
Throughput on the refinery was 15.4 million barrels (1H19: 21.2 million barrels) and pipeline 7.5 million barrels (1H19: 10.3 million barrels) in the six months to June 30.
“Diesel and petrol demand had recovered to pre-COVID levels, prior to the latest lockdown measures announced by the New Zealand Government on 12 August, while jet demand remains weak at around 40%.
“This continues to impact on the way in which we operate the plant and our revenue, given the reduced supply of jet fuel into Auckland Airport,” James says.
“We continue to work closely with our customers to help manage fuel supply in this uncertain market. After operating the processing units on a rotating basis for three months to reduce production, we are now restarting the refinery after a 6-week temporary shutdown, from early July, in order to balance fuel supply across the country,” she says.
Strategic review
In April, Refining NZ began a strategic review of business operations and the company is engaging with customers to evaluate a possible future as a fuel import terminal.
The first phase of the review has been completed and the company is now developing plans to simplify refinery operations and structurally reduce operating costs.
“Simplification of our refinery creates the time and optionality to continue refining operations in the near-term while we assess the potential option to transition to an import terminal in the future,” James says.
“We continue to work closely with our customers to assess the longer-term options and with Government and other stakeholders to ensure there is a planned and coordinated approach to future changes.”
A further update on the strategic review process is expected to be made around the end of the third quarter.
Outlook
The company says it expects gross refining margins to “remain volatile” in the near term.
Singapore Complex Margins are expected to improve in the second half, but remain weak, compared with historic levels. Refining NZ’s uplift is expected to continue to be volatile due to COVID-19 impacts to oil and refined product demand and current high levels of inventory globally, which are expected to take an extended period of time to unwind.
Following the temporary shutdown in July and August, the refinery will operate in a low production mode to meet improved fuel demand based on customer requirements. New Zealand demand for jet fuel is expected to remain impacted by COVID-19 through this year.
