Z Energy [NZX: ZEL] will defer $50 million of capital expenditure on new storage facilities at Tauranga and Lyttelton by cutting a deal with BP and the operators of the Marsden Point oil refinery to coordinate the quality of crude oil the refinery processes.
While the country's two smaller players, Mobil and Chevron, aren't part of the arrangement, the Z and BP tie-up allows "more efficient use of Refining NZ (and) reduces Z's procurement costs without committing capital," said Z's chief executive, Mike Bennetts, in a statement.
"Z has been investigating spending up to $50 million on building larger import terminals at Mount Maunganui and Lyttelton to lower the costs of refined fuel imports.
"While the consents for these new import terminals remain in place and represent a valuable option for Z, being able to secure cost reductions through more efficient operation of Refining NZ removes the need to commit that $50 million of capital," he said.
Z shares rose 1.3 percent this morning to $3.78, while shares in New Zealand Refining, whose register is dominated by the four major oil companies, was up 0.6 percent in trading this morning, at $1.77, although the shares have fallen 28 percent in the last year.
NZ Refining last week announced a loss for the year to Dec. 31 of $5 million, as global over-supply of refining capacity and the strong New Zealand dollar squeezed refiners' margins. The company also announced a $48 million equity-raising this week, involving a placement with institutional shareholders that slightly dilutes the holdings of BP, Z, Mobil and Chevron (operator of the Caltex brand), which did not participate.
The refinery's chief executive, Sjoerd Post, said the plans would "with immediate effect" be "involved in the selection of crude to be processed for Z Energy and BP in return for a procurement cost reduction for selected fuel products produced for these customers as part of the existing processing agreement."
"The new arrangement highlights the commercial benefits from running the refinery more efficiently with an optimal crude 'diet' and the change in customer expectations with the increasing availability of competitively priced products from Asia-Pacific refiners."
The shift reflected the emergence of customers which have no ties to global owners, such as New Zealand-owned Z, which sees value in the refinery participating in the crude selection process, while other customers saw access to the local refinery as just one part of their overall regional supply chain management.
Z and BP were the two companies that voted in favour of the $365 million Te Mahi Hou upgrade project, currently under way. Mobil and Chevron opposed the move.
This article is tagged with the following keywords. Find out more about MyNBR Tags
- Marlborough displaces Central Otago for best Pinot Noir in world competition
- Hellaby shareholder: Bapcor’s offer price is too low
- READER POLL RESULT: Who won the first presidential debate?
- Warminger complained of 'aggressive selling' in email to NZX
- Court rules against Chinese investor over $7.3m Auckland property deal
Most listened to
- Ironically, Trump showed the lack of stamina he had accused Clinton of, says NBR's Rob Hosking
- NZX market surveillance manager Fraser Wyeth gives evidence at the Warminger trial
- Hellaby shareholder Aaron Bhatnagar says why he thinks Bapcor's offer is too low
- No knockout blows in first presidential debate, says NBR's Nevil Gibson
- Intueri's problems raise questions for the board, says Martin Watson of the Shareholders Association