Oil refiner can't pick upturn as profit dives

NZ Refining's Marsden Point oil refinery. Photo / Northern Advocate

New Zealand Refining says it cannot predict when there will be an end to volatility in margins that pushed its full-year profit down 81 per cent to $23.6 million.

The result exceeded a December forecast of between $10 million and $20 million but the company says that could be due to a seasonal blip rather than a long-term recovery in low margins around the world which has seen some refineries mothballed or converted into terminals.

Chief executive Ken Rivers said there had been some further recovery in January.

"But I wouldn't read too much into that. It's far too soon to say it's the rebound. We're just bouncing around in a volatile market at the moment."

NZ Refining had also been hit by the strong New Zealand dollar, or weakening US dollar, resulting in lower processing fee income.

The company said its refining margin fell from around US$12 a barrel at the start of the year to around US$1 by the end of it.

"I've been in the oil business for 35 years and I've never seen anything this bad," Rivers said.

The company will not pay a dividend this year although it said dividends would resume as soon as trading conditions allow.

"For our New Zealand shareholders it's a bit of a disappointment but it's a cyclic business. I do believe we have some structural strengths and we will survive this storm and come out stronger," said Rivers.

The drop in profit comes as Infratil and the NZ Super Fund are close to finalising a deal to buy Shell's 17 per cent stake in NZ Refining as part of a purchase of the oil major's downstream operations. There has been persistent speculation that another shareholder, Exxon Mobil, may be doing the same and yet another, Chevron, is also reported to be reviewing its operations around the world.

Rivers said the company was prepared for further change.

The oil majors hold a 73 per cent stake in the company.

During the past year NZ Refining finished its $191 million Point Forward project which has seen the size of the company grow by 15 per cent.

Despite two shutdowns the refinery processed 37.9 million barrels compared with 39.2 million the year before.

The head of research at McDouall Stuart, John Kidd, said the result was not a surprise given the double whammy of margins and the exchange rate. "Margins have basically tanked and at the end of the day NZR is basically a price taker."

The result would not have major ramifications for the Shell deal because it was a reasonably transparent business.

"They sound as though they're a long way down the process so I don't think it will affect value too much and the people at Infratil and the NZ Super Fund would have built these results into their numbers."

NZ Refining's shares closed down 2c at $3.55.