Z Energy shares fall 3.6 per cent as fuel price study finds areas of concern in petrol pricing

Z Energy shares dropped 3.6 per cent after a government-commissioned report into fuel prices found areas of concern in petrol pricing.

In a statement released to the NZX, Wellington-based Z Energy said it had removed its main port fuel price (MPP) from its website this morning, one of the recommendations made by the study. The company said it has offered to provide the Ministry of Business, Innovation and Employment with more data including daily pricing data. The shares fell 28 cents to $7.61 in the first hour of trading, having gained 8.7 per cent this year.

The study, released this morning, found New Zealand's fuel market "may not be consistent with a workable competitive market" with retail margins increasing over the past five years while more expensive petrol in the South Island and Wellington aren't explained by higher costs in those areas. The study couldn't conclude that prices are reasonable, and the authors said they had reason to believe they might not be.

The report found retail gross margins on fuel have increased significantly over the period under review, between 2013 and 2017. Fuel companies make the highest margins in Wellington, at around 31 cents per litre, with South Island margins about 30 cents per litre and North Island margins about 21 cents per litre.

The main recommendation was for the government to look further into the issue, including contracts for independent firms to access terminals around the country, and the reasonableness of prices, using price and volume data that companies should be able to provide on a consistent basis. It also recommended potential changes including a registry which would prevent major companies from seeing their competitors' market shares and the possible creation of a liquid wholesale market.

"Z is open to review around the transparency of industry borrow and loan arrangements and is not particularly interested in its competitors' market shares as this information does not inform how Z sets prices," chief executive Mike Bennetts said. "Z demonstrated to the study that the New Zealand fuel industry was more competitive than it has ever been in the past; that Z's returns were reasonable and in-line with domestic and international peers; and that barriers to entry were sufficiently low."

NZX-listed Z Energy bought Chevron New Zealand in April 2016, adding Caltex to its local transport fuels business. At the time, the Commerce Commission said price coordination at some stations wasn't enough to reject the merger, but that competition was more robust in regions where budget brand Gull stations operated.

Gull's general manager, Dave Bodger, said the results of the study were no real surprise and he hoped this would mean improved pricing for consumers.

Z prices are off a little bit because the risks of the regulator and government taking a slightly more heavy-handed approach is there, the study on the face of it leaves that open for something more to develop, so it adds a bit of risk to the sector.

"We've seen price disparity between Wellington and the South Island and the rest of the country for some time," Bodger told BusinessDesk. "We've seen those prices increase in areas we're not operating. It's a positive for consumers in areas where prices have been higher, this is actually flashing the light on where prices are."

Bodger said the company had been consistently rejected by all the major fuel companies for supply contracts when it has looked into expansion into the South Island, and the regulator is aware of this.

Mark Lister, head of private wealth research at Craigs Investment Partners, said the market would have to "go away and digest the report" and consider whether there was more to come.

"There might well be - there's a lot of data limitation and misinformation out there. It's a really difficult industry to form any firm, concrete views on, or all the questions the study was asking," Lister said. "Z prices are off a little bit because the risks of the regulator and government taking a slightly more heavy-handed approach is there, the study on the face of it leaves that open for something more to develop, so it adds a bit of risk to the sector."

"Having said that, Z has had a pretty good run, the share price had a good performance during June so there's probably a bit of profit taking as well," Lister said. "The share price is back to where it was a month ago. It'll probably be a bit volatile in the short term while people get their head around the study."

In a Cabinet paper reporting back on the study, Energy and Resources Minister Judith Collins said she plans to ask the commerce minister whether "the Commerce Commission should undertake a further, competition-specific fuel market study using data which is comparable across companies" once the antitrust regulator is empowered to undertake in depth market studies.

BP, Mobil and Chevron weren't immediately available for comment.