High dollar, tight margins push NZ Refining to full year loss

David Jackson, chairman of Refining New Zealand

Refining NZ, operator of New Zealand's only oil refinery, has reported a loss for the year to Dec. 31 of $5.0 million, reflecting the impact of a strong local currency and volatile margins caused by the global over-supply of refining capacity.

Gross refining margins for the year averaged US$4.58 per barrel of oil, compared with US$5.77 the previous year, and the company is predicting "tough" trading conditions in the current financial year also.

No final dividend was declared, making the two cents per share interim dividend the total for the year. The shares have fallen 26.3 percent in the last year, closing yesterday at $1.88.

The company had outperformed against its own target of $4 million in savings, achieving cost reductions of $6 million and was confident of achieving another $7 million in savings in the current financial year.

However, there was a global trend for refineries that had invested in upgrades and new facilities facing reduced demand "just as those new production facilities are coming online," said chairman David Jackson in a statement to the NZX.

The Marsden Point refinery, near Whangarei, is in the midst of its own major upgrade.

The North American shale gas revolution was also having an impact, with cheap natural gas "giving US refiners a cost advantage that has revitalised their refining and petrochemicals industry," he said. "The other factor in this result is the continuing strength of the New Zealand dollar, which average 82 US cents and impacted our processing fee income.

"Given the strength of the dollar and the state of global refining, we fully expect refiners' margins to remain volatile in 2014," Jackson said. "We expect business conditions in 2014 to remain difficult."

Total income for the year of $223.2 million was down markedly on the previous year's $278.5 million, while total expenses were similar, at $228.8 million ($232.2 million in 2012). The latest year's $5.0 million loss compares with an after-tax profit of $31.1 million the previous year.


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