Refining NZ has reached an in-principle agreement with Z Energy on key commercial terms, including price, for the potential to turn Marsden Point into a fuel import terminal.
Z Energy is Refining NZ’s largest customer and also owns a 15.4% stake in the business.
The agreement reached follows a similar agreement reached with BP in February 2021. Key terms of the in-principle agreement include:
- An initial term of 10 years, with the option for customers to extend,
- A combination of shared annual fixed access fees and variable throughput fees linked to actual volumes – which Refining NZ estimates would result in average fees (across all customers and on a real basis) of around $95m per annum during the initial term, and includes a take-or-pay commitment of $100m per annum for the first 36 months, $90m per annum for the subsequent 36 months, and then stepping down for subsequent periods,
- Provision for third party access to unutilised Refinery to Auckland Pipeline (RAP) capacity.
Based on the in-principle agreements reached with BP and Z Energy, the company will prepare for a shareholder vote both on the major transaction and change in business model, and on the proposed customer agreements.
Refining NZ will also request the necessary lender consents and confirmation of financing arrangements to debt fund the conversion. It will also continue to seek commercial agreement with Mobil.
Front end engineering and design (FEED) and detailed implementation planning is also ongoing.
Refining NZ independent chair Simon Allen says it’s a “significant milestone” in the strategic review “which has been focused on securing fair value for our infrastructure”.
“The import terminal operation would utilise our highly strategic infrastructure to receive, store and distribute transport fuels primarily to the Northland and Auckland markets safely, reliably, and efficiently.
“The proposed long-term agreements for the import terminal would result in significantly more stable earnings compared with the inherent volatility of refining and enable the company to deliver through the cycle returns to shareholders,” Allen says.
Refining NZ chief executive Naomi James says on current estimates, a final investment decision in Q3 2021 would enable a conversion to occur by mid-2022.
“The final investment decision remains subject to shareholder vote and lender approvals, completion of FEED and detailed planning, consultation with employees and unions, as well as negotiation of binding terminal services agreements with customers.
“We are focused on concluding our customer negotiations and to providing greater certainty to our employees, customers and other stakeholders,” James says.
‘The right decision’
Z Energy chief executive Mike Bennetts says transitioning Refining NZ’s operations to an import terminal “is the right decision”.
“We have carefully considered all the options open to Z in making this decision and we have agreed the in-principle deal to provide clarity and certainty around safe and reliable fuels supply for New Zealand.
“The refinery can now move forward with its [import terminal system] conversion plans and preparation for obtaining approvals, while Z can progress towards its preferred operating model of exiting the crude supply chain.
“The New Zealand fuels industry is about to enter a period of significant transformation with changes resulting from the Fuel Industry Act and the conversion of the Refinery.
“These changes will deliver flexibility and pricing transparency for our customers, reduce the environmental impact to New Zealand of domestic refining, reduce the volatility in Z earnings while releasing considerable working capital from Z’s supply chain,” Bennetts says.
