Future of Northland's Marsden Pt Oil refinery uncertain as company does strategic review

Marsden Pt Oil Refinery, at the entrance to Whangārei Harbour, is undergoing a review which could see it getting out of fuel refining altogether.

One of Northland's largest businesses, Marsden Pt Oil Refinery, is having a review that could see it stop its main business - refining oil - and instead become a fuel import business.

Refining NZ, which operates the country's only oil refinery at Marsden Pt, announced to the NZ Stock Exchange that it has started a strategic review to 'determine the optimal business model and capital structure for its assets that will maximise through the cycle returns to shareholders, and deliver secure, competitive fuel supply to NZ'.

Refining NZ directly employs around 400 workers, and about 250 more in local contracting companies. What the review will mean for those staff and contractors is unknown at this stage.

In the 12 months to the end of December Refining NZ made a net profit after tax of just $4.2 million, down from $29.6m the previous 12 months. The company has assets of nearly $1.4 billion and shareholders' funds of $750m.

The Covid-19 pandemic has led to a steep drop in fuel prices, which is believed to be impacting the refinery's profits, with cheaper fuel available from overseas.

Refining NZ chairman Simon Allen said the company has quickly responded to the Covid-19 situation but is challenged by structural conditions resulting in low refining margins globally and oversupply in the Asia region.

''It is appropriate for us to review the fundamentals of the business and the company's future within the New Zealand fuel supply chain,'' he said.

"The company has a significant investment in infrastructure critical to the New Zealand fuel supply chain, alongside a refinery that can provide critical skills and capabilities to the economy as it transitions to a lower carbon future. The strategic review will allow us to determine the best future use of these assets to support secure, competitive fuel supply to New Zealand, now and into a lower carbon future."

He said the review will look at 'opportunities to improve the competitiveness of refining operations and options to separate the refining and infrastructure assets or convert to a fuel import business model'.

The review will also look at the capital structure required for the preferred option to maximise value for shareholders.

Chief executive officer Naomi James said the company's assets play a critical role in the supply of transport fuel and its infrastructure provides a strong competitive advantage, particularly in the supply of fuels to Auckland and surrounding areas.

Refining NZ CEO Naomi James.

''As well as the company's role in the fuel supply chain, Refining NZ is a major employer and makes an important contribution to the Northland economy. We know that the future for this business will need to look different and are open to all options to operate a high-performing, competitive refining and infrastructure business, and to alternative future import business models.

"Taking the step to commence this strategic review now ensures we can put in place the right plans for the company's future as we come through Covid-19 and play our role in supporting the recovery of the New Zealand economy.

"We will be working closely with our customers, government and other stakeholders through this process to make sure we consider all the options to provide a secure, competitive fuel supply to New Zealand now and into the future as requirements change.

"The first phase of the review will be undertaken over April/ May and we expect to have more to say in June."

Last year the refinery announced plans for a 31-hectare, $36-$39m solar farm it said could provide up to 10 per cent of the refinery's annual $30m power take - with scope to expand the project further.

Again, what happens to that plan is still up in the air, but at the time Refining NZ said it was looking at constructing a 26 megawatt solar farm to be developed adjacent to the refinery to supply it with renewable electricity.

The farm - which would be New Zealand's largest if built - would be funded via a combination of non-recourse project debt funding and equity of around $12-$15m from the company.