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Applications pending for NZ Refining's dredging of Whangarei harbour

The dredging is to allow heavier loads on oil tankers.

Fiona Rotherham
Thu, 05 May 2016

New Zealand Refining [NZX: NZR] hopes to apply for resource consents by the end of this year to dredge Whangarei Harbour in an operation expected to cost between $30-$45 million.

The dredging is to allow heavier loads on tankers bringing crude oil to the refinery.

Chief executive Sjoerd Post says consent application readiness for dredging sand at the harbour's mouth requires a multitude of studies and extensive community consultation. Already the operator of the country's only oil refinery has spent about $3.5 million on feasibility studies and that cost is likely to go to $5 million by year's end.

The many parallel studies include the impact of dredging on tidal flows and sedimentation, on marine mammals such as whales and dolphins, the seabed population and recreational fishing. There are also studies on where to place dredged sands and safe channel design, and possible removal of an existing S-bend in the harbour channel.

The refinery's customers are only able to import 600,000 to 700,000 barrels of crude oil monthly rather than a tanker's full capacity of 1 million barrels because the heavier load risks the tanker hitting the channel bottom. Being able to make fewer, but fully laden trips will save money.

There has been no decision whether to apply under the Resource Management Act or to the Environmental Protection Authority for a fast-tracked national interest project. Mr Post says it could take until mid-2018 to "get the shovels out", for completion in 2019.

Under a new strategy, the board will shift NZ Refining's capital growth expenditure from "occasional big bullets" to a more even spread over the next few years, in the order of $10-50 million a year, he says.

It has spent some $735 million on large capital projects in the past decade, including the $365 million Te Mahi Hou project completed this year to lift petrol production by two million barrels to around 14 million barrels a year and boost the refinery's share of the country's petrol demand from around 55% to 65%.

NZ Refining's capital expenditure for this year is expected to be $80 million with the key projects including the dredging, a project with Vector to double the refinery's natural gas take via the northern pipeline, looking at the feasibility of extra crude tankage, an automatic pilot for the refinery's CCR (Continuous Catalyst Regeneration) unit, and near infrared spectroscopy as a way to test its blend without having to take samples to a laboratory.

Shareholders at the annual general meeting voted on reducing the minimum number of board members from 8 to three, after criticism the refinery board was too large. Director numbers will reduce from 10 to eight, with four independents including new chairman Simon Allen.

The board also introduced an annual fee increase for the chairman and directors of $10,000 and $8000 respectively, the first since 2013 and for non-independent directors of $12,000 annually, the first in five years, without needing to increase the directors' fee pool because of the reduction in numbers.

The refinery returned to paying dividends – 25c per share – last year after near doublings its average gross refining margin at $US9.20 a barrel, prior to cap or floor adjustment.

Shareholders questioned what had led to that and whether that was likely to continue this year.

Mr Post says typically low crude oil prices meant low-profit margins for the refinery but 2015 was a unique year with a rebalancing in the oversupply of refining capacity and a big upsurge in gasoline demand due to the lower prices. A weaker kiwi dollar and high refining margins also contributed to one of its best annual results on record - net profit of $151 million in 2015.

The refinery didn't publish a forecast for the 2016 financial year but Mr Post says its two-monthly margins report released in March "wasn't as good as the market had hoped for which caused downward pressure on the share price". The shares are trading at $2.98, up 27% for the year.

The company has just published an explanation of its processing fee which has been subjected to regular reviews since being introduced 20 years ago and allows for a 70/30 split of gross refining margins between the refinery and its major oil company shareholder/customers. The contract also allows for a margin cap and fee floor that means the refining margins can't go above a certain limit and can't go below the floor in any calendar year.

The NZ Shareholders' Association called for the company's complex arrangement to be shifted from one year to two years to "moderate large swings in profitability" for NZ Refining. The company agreed to consider the proposal in the next review of the processing fee.


Fiona Rotherham
Thu, 05 May 2016
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Applications pending for NZ Refining's dredging of Whangarei harbour