$365m refinery project gets nod

16:00, Feb 21 2012

Up to 300 extra jobs will be created in Northland at the peak of a planned $365 million expansion project at the Marsden Point refinery - its third major upgrade in a decade.

The project, just approved by the board, is expected to see a $60m lift in operating profits and a strong jump in dividends once completed in 2015.

Yesterday, Refining New Zealand announced that profits for the year fell 40 per cent to $34.5m, as margins fell away at the end of the year and profits were knocked by a strong New Zealand dollar.

Its shares ended yesterday up 1 cent at $2.89.

Despite the profit fall, it will pay a final dividend of 9 cents a share, the same as the previous year. After its growth project is complete, dividends are likely to be "40 per cent north of where they would have been otherwise", chief executive Ken Rivers said, though dividends may be down a little during construction.

Just under a third of growth-project spending will be on specialised equipment from overseas, with the balance of about $250m spent in New Zealand.

The project was expected to lift operating earnings by about $60m a year and pay back its cost within four years, he said. The project would lift gasoline production by about 2 million barrels a year, taking market share from 50 per cent to about 65 per cent, improving the company's competitiveness with imports.

The total cost of the project, including engineering planning work and capitalised interest costs, is $425m. The high cost, half of Refining NZ's market capitalisation, means it will go to shareholders for approval at its annual meeting on April 27. The growth project will take from 2013 to 2015.

While Refining NZ is about to launch into the giant project, Rivers, 60, will leave the company once a replacement is found.

He was seconded from Shell in Britain, where he was manufacturing director, and will return there to be with elderly parents and his adult daughters. Refining NZ will look to replace him over the next six months.

He said he would stay till he was replaced. "I just wish I'd discovered New Zealand years ago ... I've had a whale of a time and learned a huge amount."

He would remain with the company through the full approval process for the project. The internal rate of return on the scheme is just over 17 per cent, which he said was "healthy".

The growth plan follows about $200m spent on one expansion in 2005 and another $190m in the 2009 Point Forward project.

The new project would employ up to 300 at its construction peak, but would likely create double that number of jobs outside of the site, with jobs among suppliers.

"It will be a boost for New Zealand  a fresh bit of capital coming in," Rivers said.

Meanwhile, the Northland-based oil refinery company said operating earnings were $132.2m for the year to the end of December, down from $156.7m in the previous year, a drop of 15 per cent.

Rivers said refinery margins remained relatively healthy at an average US$6.11 (NZ$7.28) a barrel in the past financial year, compared with US$6.17 the previous year. The fall in overall profit, down 40 per cent, partly reflected a drop in intake of crude oil, down from 41 million barrels to 39 million in the year just ended.

"The key is the foreign exchange. In 2010 it was US72c and in 2011 it is US79c. That is the really big kicker [for lower profits]," he said. "That's what hurt us."

The bottom-line profit was also down because of high depreciation of assets.

The company repaid $60m in debt during the year, leaving it owing just $25m. It has effectively paid off the $190m Point Forward project just two years after commissioning the plant.