5 Jul 2021

Refining NZ directors unanimously back Marsden Point conversion

12:43 pm on 5 July 2021

The conversion of the Marsden Point oil refinery into an imported fuel storage facility is being strongly backed by Refining NZ's independent directors as a way to turn around its financial fortunes, cut carbon emissions, and return to dividends sooner.

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Photo: RNZ/Nikki Mandow

Background reports on the proposal have been released ahead of a special shareholder meeting in early August.

The future of the refinery has been under review since early last year, as the pandemic exacerbated its problems with falling refining margins and an oversupply of fuel in the Asia-Pacific region.

The company, which proposes to change its name to Channel Infrastructure, would phase out processing or crude oil and become a storage facility for refined fuel imported by the major oil companies.

"The Independent Directors unanimously agree that now is the right time to make this change and convert the Marsden Point site into a dedicated import terminal," Refining NZ chair Simon Allen said in a letter to shareholders.

The accompanying documents for the meeting said there would be one-off costs of up to $280 million to make the change, dismantle the refinery, and clean up the site.

However, it said after the change the company would have more stable earnings, averaging about $95m a year, and not be subject to volatile refining margins as it is at the moment, and have lower capital expenditure needs.

Refining NZ has already come to tentative 10-year agreements with Z Energy and BP, but is still negotiating with Mobil.

The three oil companies, which own just over 40 percent of the refining company, will not vote on the proposal.

An independent report by consultancy Grant Samuel has backed the proposal as fair to shareholders, and likely to lead to a resumption of dividends within a year or two, about five years earlier than if the refinery continued as is.

The company said there would also be significant savings in power and carbon emission costs, while there would be a loss of more than 200 jobs by the end of the transition. It said inevitably falling fuel consumption as transport is decarbonised would mean the refinery would not be commercially feasible in the long run.

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