A significant squeeze on refining margins and reduced demand for fuel globally saw the owner of Northland’s Marsden Point refinery suffer a loss for the financial year.
Refining New Zealand, partially owned by customers BP, Mobil and Z Energy, reported a net loss of $198.3 million, most of which can be accounted for by a $158m write down of its refining assets, announced earlier in the year.
Chief executive Naomi James said the global drop in demand triggered by Covid 19, as well as expectations of a slow recovery, weighed heavily on an already oversupplied market.
“Singapore Complex Margins were negative across most of the year and the Gross Refining Margin of $US1.63 per barrel earned was the second lowest in the 25-year history of the Company’s Processing Agreements.”
The company was forced to adapt to the reduced revenue, pulling back on refinery production.
It operated processing facilities on a rotating basis to produce at lower rates, and shut down the facility altogether for a six-week period to help balance fuel supply across New Zealand.
A fee floor, which guarantees the refinery a fixed amount of revenue, helped cushion the impacts of the low margins and reduced production, and the company adjusted its costs to fall within the fee floor.
“This significant reduction in costs required a ‘whole of business’ response and strong financial discipline.”
“This was achieved through a combination of both short-term measures – stopping and deferring all non-essential work and reducing variable costs due to the lower throughput – and through longer-term structural changes including a reset of our turnaround philosophy,” James said.
Progress made on future of Marsden Point
Following a strategic review carried out last year, Refining New Zealand confirmed on Wednesday it had made progress in its plan to stop processing crude oil and transition to an import terminal for fuel.
It said it had now agreed terms with one of its major shareholders and customers BP, but that talks with other major fuel companies Z Energy and Mobil would continue.
Z Energy and Refining New Zealand last year clashed over the processor’s moves to a simplified model with reduced production levels, with the fuel company disputing the processing fees it was being asked to pay.
Refining New Zealand said that while talks were ongoing, it would not pursue the customer disputes.
“There is a strong commitment from management and the board to realise fair value for shareholders from the company’s strategic infrastructure assets while continuing to support secure, competitive fuel supply to New Zealand,” Naomi James said.
She said the final decision to convert to an import terminal would be made following a vote by its non-customer shareholders following an independent report.