NZ Refining 1H profit drops 45%, margins recover

NZ Refining posts 45% drop in 1H profit as margins recover

By Pattrick Smellie

August 18 (BusinessDesk) – New Zealand Refining Co. put in a “sound” performance for the six months to June 30, despite reporting a 45% reduction in tax-paid profit of $29 million, the company’s chairman, David Jackson, told the NZX in a statement today.

The result reflected a combination of lower throughput owing to maintenance and expansion and lower refinery margins than in the first half of 2009, which served to hide a plant expansion and recovery in refinery margins since their collapse in the second half of last year.

Jackson also reported that healthier refining margins – a key determinant of the Marsden Point oil refinery’s profitability - had continued into July and August, but “in our opinion, the market fundamentals have not yet changed to such an extent that this would indicate a sustained recovery in refining margins.”

Shares in NZ Refining rose 3.3% to $3.10 after the announcement, which included a 2-cents-per-share fully imputed dividend, payable Sept. 16, with directors expressing confidence that there would be a final dividend “if processing fee and exchange rates remain at current levels.”

Revenue from ordinary activities fell 26% to $135 million, while the $5.9 million impact of changes to depreciation rules on industrial buildings was amply offset by reduced deferred tax liability of $7.4 million, caused by the Oct. 1 cut in the company tax rate.

A major plant shutdown in May, the first of two this year, allowed essential maintenance, including the first phase of a $27 million upgrade on the hydro-cracker, but ran in costs $8 million higher than planned because of bad weather and “emerging work” that appeared once the machines were in bits.

There will be a second shutdown in October.

Also during the half, the refinery commissioned the $190 million, five year Point Forward project, which will increase output to 135,000 barrels refined per day, and allow some 80% of New Zealand’s transport fuel requirements to be refined onshore.

Expected throughput for the year is 39.5 million barrels, Jackson said.

Refinery margins were currently in the US$5 to US$7 range, although the refinery’s margins are capped at $6.30, “in complete contrast to margins levels of circa US$1 per barrel experienced towards the end of 2009.”

(BusinessDesk)

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