CHI - Channel Infrastructure Ltd (NZR)

[Joshuatree]

Maybe they could refine some chelsea golden syrup when gaps in the pipeline flow ,appear.Utilise it to the max.

[bull....]

Kinda regret buying into this one heavily a few years ago ... still making a profit but only because of the reasonable dividends ... was hoping this puppy would go up to $3 at one point ... oops

back in 2016 the comapny stated they were going to become a top 50 quartile dividend payer with lower debt levels 10 - 20% and short term payback projects. so im not surprised many including myself brought into the hype, unfortunately they have failed misserably to live up to the hype.

[RTM]

New GM has got a background in renewables. This could be his version of putting up new wallpaper. Very expensive wallpaper at that. I hope they build oppourtunity cost into their calculations as when the railway line heads to the port (another of shanes projects) I am pretty sure that the substaintial land holding that the refinery wants to turn into a solar farm will be worth a lot more that it currently is.

Your point about the solar farm on the land more or less adjacent to our new major Port is a good one. Agree, this land probably of a lot more value supporting the port. I guess the solar farm could go elsewhere ? Just needs somewhere it can hook up to the electrical grid ? And a friendly lines or power company ?

[Beagle]

The business model from a minority shareholders perspective is fundamentally flawed.
The $9 barrel processing fee cap is there purely for the fuel companies benefit and has not been raised for even the effects of inflation for many years, let alone for the increasing ESG and compliance risk or the increasing capex required.

Its a pure cyclical company run for the fuel companies benefit, not minority shareholders benefit. The real dividend is the cheap refined fuel which the fuel companies apply an arguably exploitive mark-up too. Why would you bother...

[macduffy]

Precisely, Beagle. It hurts to advocate losing another company from our skinny NZX but really, NZR would be doing minority shareholders a favour by encouraging oil companies, including the newer, smaller ones to buy those minority shareholders out.

[Pumice]

Precisely, Beagle. It hurts to advocate losing another company from our skinny NZX but really, NZR would be doing minority shareholders a favour by encouraging oil companies, including the newer, smaller ones to buy those minority shareholders out.

Just a thought.... could minority shareholders pool their stock and act as an agent for a competitor fuel company in the same way the oil company shareholder do? maybe they need some competitive tension.
Be interesting to see what processing fee could be negotiated on whether the 70/30 GRM split would hold etc

[bull....]

share price looks like it wants to test its 2014 lows again , terrible performance , not surprising because minority investors have always played second fiddle to the majors interests

[SailorRob]

And it's still massively overvalued. Through immense effort and taking huge risk they manage to make on average 30 mil net profit a year over the last 10 years. All this company deserves as a multiple is 10, so based on earnings the company should have a market cap around 300 mil. Less than half what it does now. Solar farm will be a massive disaster, uneconomical and will go way over budget. The pipeline is the cream dragged down by the rest of the business. The pipeline the deep water port and tank farm and land are great long term assets which may be able to earn good profit in the future. Right now CAPEX is the killer and it ain't going away.

As others have said - massive difference between normal shareholders and the shareholders that use the refinery.

[bull....]

this may not be good for nz refining earnings. refining margin must be bad

from z statement today

The contractual arrangements that Z has with the New Zealand Refining Company (NZX: NZR) means we havea ‘floor’ in the processing fee that we pay to the refining company. Third party forecasts regularly provided toZ estimate that during 4QFY20 refining margins will drop below the ‘floor’ level and may require Z to ‘top up’the refining company

[bull....]

the debt matrix might blow out on bad refining margins making borrowing for those solar projects etc unattractive due to borrowings

[SailorRob]

the debt matrix might blow out on bad refining margins making borrowing for those solar projects etc unattractive due to borrowings

More unattractive you mean?

I think the solar farm is some type of separate entity - as far as the debt is concerned anyway.

The crude shipping sanctions are killing the margin at the moment.

'The margin is calculated as the typical market value of all the products produced, minus the typical market value of all feedstockprocessed. The typical market value of products is determined by using quoted prices for the products in Singapore plus the typicalfreight cost to New Zealand plus product quality premia. The typical value of feedstock is determined by using the market value forcrude oil and other feedstock at the point of purchase, plus the typical cost of freight to New Zealand'.

[Sideshow Bob]

New CEO announced. https://www.nzx.com/announcements/346980

Can't see much changing.....

[Rowdy Flat]

New CEO announced. https://www.nzx.com/announcements/346980

Can't see much changing.....


She's got an impressive CV. God knows they need some new blood on board.

[percy]

She's got an impressive CV. God knows they need some new blood on board.

Lets hope she delivers.

[bull....]

Lets hope she delivers.

wouldnt hold your breath , company dominated with self interest

[Waikaka]

Long time lurker first time poster. NZR is on my buy list at the moment.

Pro: long history of dividend payments, stable demand for product, decent discount between price and book value. Significant moat to any competitors. Tank farm, port land and RAP all great irreplaceable assets.

Cons: Leverage is too high, cornerstone shareholders with vested interests, long history of short term CEO's, recent greenwashing ie solar farm.

With a market cap of ~$560 million for a 120kbpd refinery and pipeline etc happy to hold my nose and pick this one out of the gutter.

[macduffy]

Welcome, Waikaka and good luck with NZR. I'm a holder but well aware that the company is run, first and foremost for the major, not just cornerstone, oil company shareholders. Yes, there's been some good dividends in the past, but also some lean years. Not my favourite company but not an absolute dog, IMO.

[Waikaka]

Interesting that in 2014 BP, Mobil, Z-Energy and Chevron held ~65% of the company. With Chevron exiting in 2015 and BP halving its stake in 2017 they now only have 42.6% between them.

I understand that the generous tolling terms help ensure that the refining continues in NZ so has some justification but hope that longer term a slightly more equitable balance can be found.

[SailorRob]

Interesting that in 2014 BP, Mobil, Z-Energy and Chevron held ~65% of the company. With Chevron exiting in 2015 and BP halving its stake in 2017 they now only have 42.6% between them.

I understand that the generous tolling terms help ensure that the refining continues in NZ so has some justification but hope that longer term a slightly more equitable balance can be found.


Waikaka, please look at earnings over the last 10 years and average them out. Look at the free cashflows (or lack of) and see what the CAPEX is spent on. Agree with the strategic assets but look at the income they earn. Look at what's happened to Australian refineries.

[bull....]

and its a asset in its sunset years how long that maybe.

[Waikaka]

If it was truly a sunset industry in terminal decline then we would see a sustained decrease in oil consumption in NZ. Apart from a GFC related dip NZ demand is higher than ever (snip from MBIE EDF 2018). I would hazard that NZR will still be refining in 10 years.

10945

Regarding earnings


Average FCF since 2010 has been $11 million a year. Significant plant upgrades and shut downs are out of the way so I would hope the next 10 year are more profitable with more material processing more cheaply.
If I take out the years around Te Mahi Hou (2013 & 2014) and the shutdown (2018) which happen infrequently (10 yr +) then average FCF is $76.5 million

Large CAPEX has been spent on:
Jet tank farm upgrade (2019-ongoing)
Shut down (2018)
Crude shipping project (ongoing)
RAP upgrade (2019)
Te Mahi Hau (2015)

All of these projects have or aim to move more volume, more efficiently, exactly what a tolling refinery should be doing. More oil through means more money. Expensive running a refinery but they seem to do it well.

Australian refineries are a bit different as they have multiple refiners, some consolidation of smaller refiners is happening. As we only have one refiner it is in a better position. Also note when the Australian refineries close they turn into import terminals, unlikely that NZR will stop refining but if they did, there would still be significant value in their infrastructure (port, pipeline and tank farms).

80% of our imported refined oil comes from Singapore and South Korea. It is likely that ultimately these mega refineries will scale sufficiently to drive NZR out of the refining business but it wont happen in the medium term with the sweet deal BP, Z and Mobil.

[bull....]

If it was truly a sunset industry in terminal decline then we would see a sustained decrease in oil consumption in NZ. Apart from a GFC related dip NZ demand is higher than ever (snip from MBIE EDF 2018). I would hazard that NZR will still be refining in 10 years.

10945

Regarding earnings


Average FCF since 2010 has been $11 million a year. Significant plant upgrades and shut downs are out of the way so I would hope the next 10 year are more profitable with more material processing more cheaply.
If I take out the years around Te Mahi Hou (2013 & 2014) and the shutdown (2018) which happen infrequently (10 yr +) then average FCF is $76.5 million

Large CAPEX has been spent on:
Jet tank farm upgrade (2019-ongoing)
Shut down (2018)
Crude shipping project (ongoing)
RAP upgrade (2019)
Te Mahi Hau (2015)

All of these projects have or aim to move more volume, more efficiently, exactly what a tolling refinery should be doing. More oil through means more money. Expensive running a refinery but they seem to do it well.

Australian refineries are a bit different as they have multiple refiners, some consolidation of smaller refiners is happening. As we only have one refiner it is in a better position. Also note when the Australian refineries close they turn into import terminals, unlikely that NZR will stop refining but if they did, there would still be significant value in their infrastructure (port, pipeline and tank farms).

80% of our imported refined oil comes from Singapore and South Korea. It is likely that ultimately these mega refineries will scale sufficiently to drive NZR out of the refining business but it wont happen in the medium term with the sweet deal BP, Z and Mobil.

data for past oil consumption in NZ is irrelevant if your considering the future, as Z energy have presented in there modeling there will be a decline in petrol consuming moterists going forward. probably not noticable in 10yrs but who knows events like bush fires in AUStralia just speed up the call for change to green. Also as electric vehicle technology improves which it is getting cvheaper and better each year will speed up conversion to electric as well. telsla just started up big factory in china which promises to lower the cost per vehicle big time and look how that has put a sky rocket under there share price as people now realise tesla is a leader in the field.

I do agree nzr does have good fcf but they are really just spending it all on stay in business capex to prolong the life of the refinery. moving more volume doesnt necessayry translate into more profit as it depends on the crack at the time as well as other factors. with cracks low at the moment nzr not gonna be making much boomer profits to reduce debt and pay big NZX sized divs.

if the share price went lower i might get tempted as a punt for a massive div one day as they probably be aroung in 10yrs but who knows with how fast technology and opinion on fossil fuels is changing

[Schrodinger]

I think this industry is cyclical and can benefit from external factors such as refinery issues in other countries etc. I cant remember the math but there is a sweetspot where it makes NZ based refined petro cheaper than importing on a tanker.

Considering the expense of shipping I think NZR needs to scale up even more. I assume there is a cost benefit between importing the oil v fuel i.e. % extra cost as shipping is the same cost? Also they get some local oil from Todd?

[mcdongle]

When will Labour / Greens join this club?

https://en.wikipedia.org/wiki/Phase-out_of_fossil_fuel_vehicles

[Ggcc]

When will Labour / Greens join this club?

https://en.wikipedia.org/wiki/Phase-out_of_fossil_fuel_vehicles
The sooner the better as I am sure the majority of public will not like that happening in the foreseeable future

[SailorRob]

If it was truly a sunset industry in terminal decline then we would see a sustained decrease in oil consumption in NZ. Apart from a GFC related dip NZ demand is higher than ever (snip from MBIE EDF 2018). I would hazard that NZR will still be refining in 10 years.

10945

Regarding earnings


Average FCF since 2010 has been $11 million a year. Significant plant upgrades and shut downs are out of the way so I would hope the next 10 year are more profitable with more material processing more cheaply.
If I take out the years around Te Mahi Hou (2013 & 2014) and the shutdown (2018) which happen infrequently (10 yr +) then average FCF is $76.5 million

Large CAPEX has been spent on:
Jet tank farm upgrade (2019-ongoing)
Shut down (2018)
Crude shipping project (ongoing)
RAP upgrade (2019)
Te Mahi Hau (2015)

All of these projects have or aim to move more volume, more efficiently, exactly what a tolling refinery should be doing. More oil through means more money. Expensive running a refinery but they seem to do it well.

Australian refineries are a bit different as they have multiple refiners, some consolidation of smaller refiners is happening. As we only have one refiner it is in a better position. Also note when the Australian refineries close they turn into import terminals, unlikely that NZR will stop refining but if they did, there would still be significant value in their infrastructure (port, pipeline and tank farms).

80% of our imported refined oil comes from Singapore and South Korea. It is likely that ultimately these mega refineries will scale sufficiently to drive NZR out of the refining business but it wont happen in the medium term with the sweet deal BP, Z and Mobil.


It's not a sunset industry, it's a growing industry. I work for the company and have done for a long time, drop a line if you wish svchieftain@gmail.com. I'm not in possession of any information that is not available to the market and it looks as though you have done some research, that said you are missing a great deal.

[bull....]

caltex in aus just released there trading update yesterday and there refining margin took a big slump in Q4

https://www.asx.com.au/asxpdf/20200116/pdf/44d9gt4nb7pmzl.pdf

[bull....]

just as we thought , cracks are bad.

doesnt look good for immediate future and shares are hitting new lows but that is how it goes for a refining company. debt wont look good soon i reckon

https://www.nzx.com/announcements/347355

[Justin]

its the time to catch the knife？

[bull....]

its the time to catch the knife？

you gotta ask yourself DO I FEEL LUCKY

[Justin]

Sp dropped like we are going to say goodbye to petrol and diesel tomorrow:eek2:

[bull....]

Sp dropped like we are going to say goodbye to petrol and diesel tomorrow:eek2:

did you buy? dont think cracks are favourable at the moment

[Waikaka]

Cyclical businesses always have their ups and downs,

Don't think anything has changed on the demand side. Has something fundamental made the business worth 25% less than 6 months ago?

Happy to keep on buying and take advantage of the price drop.

[theace]

Happy to keep on buying and take advantage of the price drop.

I bought some more to average down. Still in the red, however, don't think we'll be "not" needing fuel any time soon, and the share price will crepe back up.

[bull....]

Cyclical businesses always have their ups and downs,

Don't think anything has changed on the demand side. Has something fundamental made the business worth 25% less than 6 months ago?

Happy to keep on buying and take advantage of the price drop.

fundamentally the world is changing , oil is a dinosaur on the way out. look at exon mobil share price ( and all others in the field ) they are being priced for the reality of there death coming.
nzr is spending to just stay in business , there debt is exploding due to low cracks

[Waikaka]

fundamentally the world is changing , oil is a dinosaur on the way out. look at exon mobil share price ( and all others in the field ) they are being priced for the reality of there death coming.
nzr is spending to just stay in business , there debt is exploding due to low cracks

I feel like that view summaries nicely what is driving the share price down to good value.

While NZR has its own problems and it is hard dirty work refining crude. I don't see any major medium term changes in demand in NZ. I am happy to wait for the FY 19 announcement on Thursday to see what debt etc is doing.

Haven't looked at XOM but suspect I would much rather invest in it rather than Netflix, Tesla, Beyond meat of other money sinks.

Great time to deploy my cash pile on a few undervalued equities and then check on them in a few years

[Schrodinger]

Screaming buy imo

[bull....]

result as expected not very good due to cracks etc , dont agree with there experts outlook though.

[Schrodinger]

This industry has shown over the years to be cyclical. I expect it to turn at some stage.

[Jerry]

I can see fossil-fuelled cars being replaced, but there is no way big hauling trucks can work on electricity. There will have to be hydrogen fuel cells developed for them. It may come faster than I think, but diesel will be needed for a long time yet.
While I have a petrol-driven car it would be perverse to deny the need for a refinery. The Annual Report seems reasonably cheerful, but then they always do.

[Arthur]

There are already trucks running on battery power and more coming, range is limited at the moment, but there is no trouble hauling weight.

[Beagle]

Screaming buy imo

It will be at some point but catching falling knives is not my idea of fun.

[Scrunch]

Casually following this fall, but not a holder.

The biggest issue is what will short, medium and longer-term margin's be. If margin's decline when there is world-wide surplus capacity and that surplus capacity increases due to the looming economic slowdown and conversion of vehicles to battery power, the margin outlook is poor. NZR may keep volume up for some time, but if the margin's aren't there, neither are the profits or dividends. Takeaway this share price support and the price collapses. The trigger for revalation (if it occurs) is probably other refinaries around the world calling it quits which would help address surplus capacity.

[bull....]

crack spreads are still bad at the moment

[bull....]

corona virus impacting the cracks bigger than i thought

https://www.nzx.com/announcements/350350

[Waiuta]

This company which I am an unfortunate shareholder in needs to get real with business today and stop telling shareholders all about their focus on problems which seems to be continually highlighted in their annual report. They should be spending more time on finding the solutions to reward their shareholders rather than spending heaps delivering pouncy reports.
In view of their no final divie to shareholders there was no mention of curtailing their staff entitlement scheme.
I hope the NZ Shareholder's Assn brings this company to account.

[hogie]

This company which I am an unfortunate shareholder in needs to get real with business today and stop telling shareholders all about their focus on problems which seems to be continually highlighted in their annual report. They should be spending more time on finding the solutions to reward their shareholders rather than spending heaps delivering pouncy reports.
In view of their no final divie to shareholders there was no mention of curtailing their staff entitlement scheme.
I hope the NZ Shareholder's Assn brings this company to account.

Agreed ... they have been pretty **** ... one of my biggest regrets was investing in NZR - the business I thought was a super stable long term dividend payer.

[Waikaka]

This company which I am an unfortunate shareholder in needs to get real with business today and stop telling shareholders all about their focus on problems which seems to be continually highlighted in their annual report. They should be spending more time on finding the solutions to reward their shareholders rather than spending heaps delivering pouncy reports.
In view of their no final divie to shareholders there was no mention of curtailing their staff entitlement scheme.
I hope the NZ Shareholder's Assn brings this company to account.


I have never really looked into the staff entitlement scheme. I presume you mean the share based payments rather than legacy pension entitlements?

Looking into the 2019 annual report seems like the company buys $1000 worth of shares per employee, can be scaled up bit if performance is met (averaging out 2015-2018 payments it has been $1050 a year per person). Then the shares vest after 3 years. Presumable to exclude temporary short term employees.

2015 cost the company $292,000
2016 cost the company $333,000
2017 cost the company $215,000
2018 cost the company $133,000

Spread across pretty stable employee count, an average of 303 employees.

So over the 4 years I have numbers for, it cost the company a total of $973,000.

NZR have an annual wage and benefit bill of ~$61 million for 2019 so it costs them about .2% of all wages/benefits for the year. Doesn't seem like a big deal to me.

I have no problem with a broad based scheme that benefits all employees. Good to encourage long term employees in a complex industrial process, churn is terrible when you are after skilled operators. If they end up with shares that aligns them with my interests right?

I am still averaging into the business. Really struggling with working out the ongoing implications of COVID19 but still seems a solid business to me. Should be around in 5 years.

I need to keep analysing as my stake gets bigger but still a really minor part of the portfolio.

[SailorRob]

Almost at fair value here. That is almost...

Unreal that people don't give a damn about profits, particularly average net profit over 10 years.

[Marilyn Munroe]

A recent news item has NZR pondering giving up refining and just using the facility for storage and distribution of refined products.

In the interests of a smooth transition to the changed realities of the brave new world Marilyn offers an out-there solution.

The refinery was built in the Think Big era to crack sour Iranian crude as part of the then mutton for oil trade.

Why not go back to cracking Iranian Sour? I am sure the Mad Mullahs would sell it cheap for the cash flow.

Of course Nutty Yahoo and the fervent Zionists who surround Donald Trump would be furious. But the key player Donald would be otherwise occupied pushing a cart around American cities crying "bring out your dead".

Boop boop de do
Marilyn

[hogie]

A recent news item has NZR pondering giving up refining and just using the facility for storage and distribution of refined products.

In the interests of a smooth transition to the changed realities of the brave new world Marilyn offers an out-there solution.

The refinery was built in the Think Big era to crack sour Iranian crude as part of the then mutton for oil trade.

Why not go back to cracking Iranian Sour? I am sure the Mad Mullahs would sell it cheap for the cash flow.

Of course Nutty Yahoo and the fervent Zionists who surround Donald Trump would be furious. But the key player Donald would be otherwise occupied pushing a cart around American cities crying "bring out your dead".

Boop boop de do
Marilyn


Perhaps the management are thinking "if Rio Tinto can hold the government to ransom, maybe we can too?" :)

[RTM]

A recent news item has NZR pondering giving up refining and just using the facility for storage and distribution of refined products.


Boop boop de do
Marilyn

I think you’ll find the press got their info from here.
https://www.nzx.com/announcements/351663

[macduffy]

Sorry, Marilyn, but the refinery was built long before the Think Big era which was in response to the oil shocks of the 1970's. New Zealand Refining Ltd was floated in the early 1960's. I know this because I worked on the IPO - in a very junior capacity!

:)

[SailorRob]

Sorry, Marilyn, but the refinery was built long before the Think Big era which was in response to the oil shocks of the 1970's. New Zealand Refining Ltd was floated in the early 1960's. I know this because I worked on the IPO - in a very junior capacity!

:)


Marilyn is technically wrong but practically correct.

[Waikaka]

Been picking up more NZR so it has been sneaking up in size in my portfolio. Currently about 8%. So always good to re-kick the tyres and put down some ideas.

First off seems sensible to idle the plant but keep it ready to restart when demand picks up again. Pretty impressed they can make that situation a "cash neutral spend rate". I see they have claimed $2,547,456.00 for 364 employees so am sure that will help.

I have always thought NZR was in a bit of unique position as the only refinery in NZ, a decent piece of critical infrastructure supporting everything from maintaining roads (bitumen) to sulphur for fertiliser and about 6.5% of Northlands GDP. So while some but not all Australian, USA and European refineries had been idled or decommissioned, the few survivors might have special status. But perhaps being squeezed by structural pressures (labour cost, plant upgrade costs and environmental regulations) in comparison with the Mega-refineries in Asia is just too much. The wording in the strategic review means it is worth looking at what that might mean.

So the meat of the recent 'strategic review announcement is here:

The Strategic 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.

First off hard to see them doing anything to make it more competitive in any significant way. Seems like about 60% of the fixed running costs of the refinery are in labour costs and realistically they cant change that much.

Next is to separate the refinery from the infrastructure.
Not the preferred option for me but I can see the appeal. What infrastructure is left when you exclude the business of cracking crude?

A whopping 38% of NZ oil storage capacity is at Marsden in about 126 tanks. Sensible maintenance program in place.
There is the free hold land and foreshore leases.
Jetties and loading kit
RAP
and operates but doesn't own Wiri tank farm. Seems like the $500k expense is on the books of leasing the Wiri tank farm (might need to dig into this)

Adds up to $1,171,301 property and plant (how much would be property?)

From the 2019 annual report 'distribution' contributed 14% of total revenue but 35% of the earnings.

I suspect that turning it into an importing facility might well be a pretty profitable situation.

Subtracting debt off total assets still leaves a decent margin of safety at these prices so still happy to pick up a little more but will stop at 10% of portfolio because of ongoing uncertainty.

[Waikaka]

I suspect RAP as a monopoly piece of infrastructure might well end up with a controlled tariff as per when Firstgas bought the Maui Pipeline.

Might need to read up on it to try and get an idea of what the value of Oil Distribution co might be.

[SailorRob]

Been picking up more NZR so it has been sneaking up in size in my portfolio. Currently about 8%. So always good to re-kick the tyres and put down some ideas.

First off seems sensible to idle the plant but keep it ready to restart when demand picks up again. Pretty impressed they can make that situation a "cash neutral spend rate". I see they have claimed $2,547,456.00 for 364 employees so am sure that will help.

I have always thought NZR was in a bit of unique position as the only refinery in NZ, a decent piece of critical infrastructure supporting everything from maintaining roads (bitumen) to sulphur for fertiliser and about 6.5% of Northlands GDP. So while some but not all Australian, USA and European refineries had been idled or decommissioned, the few survivors might have special status. But perhaps being squeezed by structural pressures (labour cost, plant upgrade costs and environmental regulations) in comparison with the Mega-refineries in Asia is just too much. The wording in the strategic review means it is worth looking at what that might mean.

So the meat of the recent 'strategic review announcement is here:

The Strategic 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.

First off hard to see them doing anything to make it more competitive in any significant way. Seems like about 60% of the fixed running costs of the refinery are in labour costs and realistically they cant change that much.

Next is to separate the refinery from the infrastructure.
Not the preferred option for me but I can see the appeal. What infrastructure is left when you exclude the business of cracking crude?

A whopping 38% of NZ oil storage capacity is at Marsden in about 126 tanks. Sensible maintenance program in place.
There is the free hold land and foreshore leases.
Jetties and loading kit
RAP
and operates but doesn't own Wiri tank farm. Seems like the $500k expense is on the books of leasing the Wiri tank farm (might need to dig into this)

Adds up to $1,171,301 property and plant (how much would be property?)

From the 2019 annual report 'distribution' contributed 14% of total revenue but 35% of the earnings.

I suspect that turning it into an importing facility might well be a pretty profitable situation.

Subtracting debt off total assets still leaves a decent margin of safety at these prices so still happy to pick up a little more but will stop at 10% of portfolio because of ongoing uncertainty.


How do you get cash neutral with a subsidy of 140 million dollars from the owners/customers. Granted it may not end up at the full 140 for the year but any cash neutrality is nonsense when you are including a subsidy. Furthermore the 100 million of depreciation every year is a very real cash expense, may be saved this year but it's just s deferral. So the cash neutral position is in reality a cash loss of between 1 and 200 million dollars.

[bull....]

Been picking up more NZR so it has been sneaking up in size in my portfolio. Currently about 8%. So always good to re-kick the tyres and put down some ideas.

First off seems sensible to idle the plant but keep it ready to restart when demand picks up again. Pretty impressed they can make that situation a "cash neutral spend rate". I see they have claimed $2,547,456.00 for 364 employees so am sure that will help.

I have always thought NZR was in a bit of unique position as the only refinery in NZ, a decent piece of critical infrastructure supporting everything from maintaining roads (bitumen) to sulphur for fertiliser and about 6.5% of Northlands GDP. So while some but not all Australian, USA and European refineries had been idled or decommissioned, the few survivors might have special status. But perhaps being squeezed by structural pressures (labour cost, plant upgrade costs and environmental regulations) in comparison with the Mega-refineries in Asia is just too much. The wording in the strategic review means it is worth looking at what that might mean.

So the meat of the recent 'strategic review announcement is here:

The Strategic 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.

First off hard to see them doing anything to make it more competitive in any significant way. Seems like about 60% of the fixed running costs of the refinery are in labour costs and realistically they cant change that much.

Next is to separate the refinery from the infrastructure.
Not the preferred option for me but I can see the appeal. What infrastructure is left when you exclude the business of cracking crude?

A whopping 38% of NZ oil storage capacity is at Marsden in about 126 tanks. Sensible maintenance program in place.
There is the free hold land and foreshore leases.
Jetties and loading kit
RAP
and operates but doesn't own Wiri tank farm. Seems like the $500k expense is on the books of leasing the Wiri tank farm (might need to dig into this)

Adds up to $1,171,301 property and plant (how much would be property?)

From the 2019 annual report 'distribution' contributed 14% of total revenue but 35% of the earnings.

I suspect that turning it into an importing facility might well be a pretty profitable situation.

Subtracting debt off total assets still leaves a decent margin of safety at these prices so still happy to pick up a little more but will stop at 10% of portfolio because of ongoing uncertainty.

your certainly a die hard supporter.

anyway considering all there cap exp before was stay in business expense and not growth as they pedaled to the masses.
now they are throwing in the towel admitting defeat due to market conditions and the fact oil majors realise the current environment means they will be paying NZR floor subsidies for a long time (clearly the thousands they threw at there market experts to tell them everything was rosy was a waste of money) means they are conducting a strategic review under the banner of covid ( as good a reason as any) to work out what to do so the oil majors can get around there subsidy obligations.
The important thing to remember is the strategic review is for the benefit of the oil majors not small fry share holders.

[SailorRob]

your certainly a die hard supporter.

anyway considering all there cap exp before was stay in business expense and not growth as they pedaled to the masses.
now they are throwing in the towel admitting defeat due to market conditions and the fact oil majors realise the current environment means they will be paying NZR floor subsidies for a long time (clearly the thousands they threw at there market experts to tell them everything was rosy was a waste of money) means they are conducting a strategic review under the banner of covid ( as good a reason as any) to work out what to do so the oil majors can get around there subsidy obligations.
The important thing to remember is the strategic review is for the benefit of the oil majors not small fry share holders.


Dead right Bull. Return on Invested Capital over the 10 year cycle has been abysmal.

Using EBITDA in the annual reports is criminal for a business like this. Maybe EBITDAC is more appropriate, Interest, Tax, Depreciation, Amortisation and COVID!

[Waikaka]

Suppose that is part of the problem, has to be a remarkably unpopular business with perpetually disappointed shareholders to get this cheap.

Having had a review, plenty of risks but at this price I am happy to be rolling around by myself in the gutter with this one.

Some companies on the NZX I think are going to have seriously challenged balance sheets seem overvalued and I am honestly a bit lost with Covid's impacts on a range of companies in my portfolio.

However as long as the business is solid(ish) I am happy to keep modestly buying.

[SailorRob]

Suppose that is part of the problem, has to be a remarkably unpopular business with perpetually disappointed shareholders to get this cheap.

Having had a review, plenty of risks but at this price I am happy to be rolling around by myself in the gutter with this one.

Some companies on the NZX I think are going to have seriously challenged balance sheets seem overvalued and I am honestly a bit lost with Covid's impacts on a range of companies in my portfolio.

However as long as the business is solid(ish) I am happy to keep modestly buying.

STU Waikaka! Pull up 13 years worth of cash flow data - stunning numbers, in fact show me better vs current price on the whole NZX.

NZR... not so much.

[Mya]

Inside scoop is that the Refinery, which used to supply a waste product stream to BOC for their Marsden Point liquid CO2 production plant, will no longer be supplying this waste stream to BOC, from September onwards.

This arrangement was very profitable previously for both parties so for NZR to no longer provide this to the BOC plant strongly indicates to me that they are relinquishing long term supply contracts in order to transition into a Terminal-only setup.

[SailorRob]

Inside scoop is that the Refinery, which used to supply a waste product stream to BOC for their Marsden Point liquid CO2 production plant, will no longer be supplying this waste stream to BOC, from September onwards.

This arrangement was very profitable previously for both parties so for NZR to no longer provide this to the BOC plant strongly indicates to me that they are relinquishing long term supply contracts in order to transition into a Terminal-only setup.


Very interesting Mya. Sure it's not just temporary during the rolling shutdowns due to reduced demand? Or it was definitely a permanent thing?

[bull....]

Inside scoop is that the Refinery, which used to supply a waste product stream to BOC for their Marsden Point liquid CO2 production plant, will no longer be supplying this waste stream to BOC, from September onwards.

This arrangement was very profitable previously for both parties so for NZR to no longer provide this to the BOC plant strongly indicates to me that they are relinquishing long term supply contracts in order to transition into a Terminal-only setup.

cheers very useful

[bull....]

the oil majors must think refining margins or demand are going to be low for a long time because the last 10 yrs nz refining has proven more profitable than direct import if you even out all the ups and downs , but only by less than $1/barrel i think.
the important thing in there decision must be what nz refining would charge for storage costs if they go this route of the import terminal as thats pretty much all the income nz refining have then but with big infrastructure costs to set it up to there already heavy debt load.
wonder who will dictate the storage cost for the analysis the oil share holders or the refinery? and will they allow for flucuating storage costs as per the normal market function

[macduffy]

wonder who will dictate the storage cost for the analysis the oil share holders or the refinery?

Aren't they more or less the same?

:mellow:

[bull....]

Aren't they more or less the same?

:mellow:

no nz refinery is supposed to act independant of there major s/h

[macduffy]

no nz refinery is supposed to act independant of there major s/h

I'm aware of that, but I don't believe that the views of major shareholders, in any company, don't carry weight in decision making.

[traineeinvestor]

no nz refinery is supposed to act independant of there major s/h

Love your sense of humour. :t_up:

[Cyclical]

Be a shame to lose the refinery. You'd think with what we are undergoing atm, we'd be looking to be more independent, not the opposite.

[Mya]

It's not a guaranteed permanent thing but sounds like it'll be at least a year. They aren't going to commit to anything permanent until they've made internal decisions on the future of the refinery, but perhaps the reduction in domestic demand of jet fuel for the next 1-2 years was enough to tip the already struggling NZR over the edge.

[Scrunch]

It's not a guaranteed permanent thing but sounds like it'll be at least a year. They aren't going to commit to anything permanent until they've made internal decisions on the future of the refinery, but perhaps the reduction in domestic demand of jet fuel for the next 1-2 years was enough to tip the already struggling NZR over the edge.

A long article about NZR covering the new CEO's transition to NZ including discussion about the potential future options.
https://www.msn.com/en-nz/money/news/can-our-oil-refinery-survive/ar-BB145J9W?ocid=spartanntp

[Joshuatree]

Thanks Scrunch a good read.Refineries fallen on hard times.Some desirable land there.

Options
Improve current refining model

After refinery business model, {including processing and distribution agreements}

Separate refining and infrastructure assets{change structure and funding}

Convert to an import terminal {new commercial arrangements}

[peat]

yes a good read , thank you
The refinery has a good chance of being mothballed by the seems , and it looks like shes the one brought in to do it. her teeth aren't as big as Jacindas but still a bit scary.
I cant imagine Labour throwing any money the refinery's way even on the basis of security of supply though because they have been so anti fossil fuels. Lots of people are still buying petrol and diesel vehicles though and hoping to run them for 10 years or more so eco is all well and good but unless the costs of EV's themselves come down people will still keep using ICE and its oil derived combustants.
Batteries are getting cheaper thought it seems see the link I just posted in Tesla thread.

[Mya]

So NZR are undertaking a strategy review currently and are planning on having a decision made by the end of June. They are considering 4 different options (continue as usual, 2 different options of reduced operations including an on/off rotating shift roster, and last option of turning the plant into a terminal). The smart money at the moment is on one of the reduced operations options going forward to tread water until jet fuel demand starts to pick up again after the border opens.

[Sideshow Bob]

Not great reading.

https://www.nzx.com/announcements/353536


RNZ Operational Update - March-April 2020


22/5/2020, 9:33 amMKTUPDTE
HIGHLIGHTS
• The Company operated on a cash neutral basis during the COVID-19 lockdown and continues to plan to run cash neutral through FY20.

• Refining NZ responded quickly to the COVID-19 situation to agree arrangements with customers to operate the refinery on a rotating basis in response to significant fuel demand reductions.

• COVID-19 customer arrangements have been extended to the end of August 2020.

• Gross Refining Margin (GRM) was USD 0.67 per barrel and Processing Fee revenue was NZD 23.7 million, predominantly Fee Floor payments of NZD 20.1 million.
• Refinery throughput for March/April was 4.7 million barrels (33% lower than January/February). Refinery to Auckland Pipeline (RAP) throughput for March/April was 2.0 million barrels (44% lower than January/February).
• Process and personal safety performance remained excellent with no Tier 1 or Tier 2 process safety events or recordable injuries.
• Refining NZ deferred all non-essential activity due to the current environment. Capex estimates for 2020 reduced from $70 million to $40 million, including deferral of the maintenance turnaround of the main crude distiller and the gasoline manufacturing unit until March 2021 (from May 2020).

• Refining NZ net debt was $252 million as at the end April reflecting cash neutral operations at the Fee Floor since moving to operate the refinery on a rotating basis.
• Refining NZ extended and expanded its bank facilities in March and its total available debt funding facilities amount to $400 million (including the Company’s $75 million subordinated notes on issue) with no significant maturities until March 2022.
• Workstreams for the major Strategic Review are ongoing and proceeding to schedule. Refining NZ expects to provide an update on the Strategic Review process in June 2020.
COMMENTARY
Refining NZ agreed with its customers in March to change the way it operated the refinery in response to the unprecedented fuel demand reduction, which was caused by global COVID-19 travel and transport restrictions. The refinery’s processing facilities have been operated on a rotating basis through April to enable production at substantially lower rates.
New Zealand refined fuel demand fell to approximately 20% of pre-lockdown levels during Alert Level 4 COVID-19 travel and transport restrictions. Gasoline and diesel demand recovered during Alert Level 3 and then further into Alert Level 2 to be circa 60% and 80% of pre-lockdown demand respectively at the date of this Update. However, jet fuel demand remains low at approximately 25% of pre-lockdown levels. Refining NZ has adopted strategies aimed at minimising jet fuel production while meeting gasoline and diesel requirements.
 
The COVID-19 mode of operating has been extended to the end of August. This includes several weeks in July and August when all the processing units will be put on standby to balance fuel supply across the country.

The refinery throughput was 4.7 million barrels during March/April. The GRM was low at USD 0.67 per barrel, reflecting a weak Singapore Dubai complex margin of USD 0.19 per barrel and the impact of the rotating mode of operation. The Company’s Processing Fee revenue was NZD 23.7 million, predominantly made up of Fee Floor payments of NZD 20.1 million.
During the Level 4 lockdown period, Refinery to Auckland Pipeline (RAP) throughput was less than 30% of pre-lockdown levels. RAP throughput during Level 2 restrictions has recovered to approximately 60% of pre lockdown levels.
As part of the Company’s response to COVID-19, all major maintenance was suspended, except where required to maintain Refining NZ’s uncompromising focus on health and safety. The main change has been the deferral of the main crude distiller and gasoline manufacturing unit maintenance turnaround, which is now scheduled to occur in March 2021. Meanwhile, a partial catalyst change on the hydrocracking facility was completed as planned in March and other critical maintenance activities were completed in April, to enable the continued safe operation of plant until the rescheduled turnaround date.
As a result, capex guidance for the year has been reduced from $70 million to $40 million. The Company operated on a cash neutral basis during the COVID-19 lockdown and continues to plan to operate cash neutral through the year, when factoring in the Processing Fee Floor and reduced RAP income. Net debt was $252 million at the end of April. Refining NZ extended and expanded its bank facilities in March and its total available debt funding facilities amount to $400 million (including the Company’s $75 million subordinated notes on issue) with no significant maturities until March 2022.

The refinery continued to operate as an essential service throughout COVID Alert Levels 3 and 4. Refining NZ established a Co-ordinated Incident Management System structure to implement business continuity plans during this time and this continues at Level 2.
Refining NZ’s excellent health, safety and environment performance continued in March and April, with no Tier 1 or Tier 2 process safety events. There were again no recordable injuries and the recordable injury frequency is 0.28 per 200,000 work hours.
Workstreams for the major Strategic Review announced to the market on 15 April 2020 are ongoing and proceeding to schedule. Refining NZ expects to provide an update on the Strategic Review process in June 2020.

[traineeinvestor]

Not great reading.

https://www.nzx.com/announcements/353536


RNZ Operational Update - March-April 2020


22/5/2020, 9:33 amMKTUPDTE
HIGHLIGHTS
• The Company operated on a cash neutral basis during the COVID-19 lockdown and continues to plan to run cash neutral through FY20.

• Refining NZ responded quickly to the COVID-19 situation to agree arrangements with customers to operate the refinery on a rotating basis in response to significant fuel demand reductions.

• COVID-19 customer arrangements have been extended to the end of August 2020.

• Gross Refining Margin (GRM) was USD 0.67 per barrel and Processing Fee revenue was NZD 23.7 million, predominantly Fee Floor payments of NZD 20.1 million.
• Refinery throughput for March/April was 4.7 million barrels (33% lower than January/February). Refinery to Auckland Pipeline (RAP) throughput for March/April was 2.0 million barrels (44% lower than January/February).
• Process and personal safety performance remained excellent with no Tier 1 or Tier 2 process safety events or recordable injuries.
• Refining NZ deferred all non-essential activity due to the current environment. Capex estimates for 2020 reduced from $70 million to $40 million, including deferral of the maintenance turnaround of the main crude distiller and the gasoline manufacturing unit until March 2021 (from May 2020).

• Refining NZ net debt was $252 million as at the end April reflecting cash neutral operations at the Fee Floor since moving to operate the refinery on a rotating basis.
• Refining NZ extended and expanded its bank facilities in March and its total available debt funding facilities amount to $400 million (including the Company’s $75 million subordinated notes on issue) with no significant maturities until March 2022.
• Workstreams for the major Strategic Review are ongoing and proceeding to schedule. Refining NZ expects to provide an update on the Strategic Review process in June 2020.
COMMENTARY
Refining NZ agreed with its customers in March to change the way it operated the refinery in response to the unprecedented fuel demand reduction, which was caused by global COVID-19 travel and transport restrictions. The refinery’s processing facilities have been operated on a rotating basis through April to enable production at substantially lower rates.
New Zealand refined fuel demand fell to approximately 20% of pre-lockdown levels during Alert Level 4 COVID-19 travel and transport restrictions. Gasoline and diesel demand recovered during Alert Level 3 and then further into Alert Level 2 to be circa 60% and 80% of pre-lockdown demand respectively at the date of this Update. However, jet fuel demand remains low at approximately 25% of pre-lockdown levels. Refining NZ has adopted strategies aimed at minimising jet fuel production while meeting gasoline and diesel requirements.
 
The COVID-19 mode of operating has been extended to the end of August. This includes several weeks in July and August when all the processing units will be put on standby to balance fuel supply across the country.

The refinery throughput was 4.7 million barrels during March/April. The GRM was low at USD 0.67 per barrel, reflecting a weak Singapore Dubai complex margin of USD 0.19 per barrel and the impact of the rotating mode of operation. The Company’s Processing Fee revenue was NZD 23.7 million, predominantly made up of Fee Floor payments of NZD 20.1 million.
During the Level 4 lockdown period, Refinery to Auckland Pipeline (RAP) throughput was less than 30% of pre-lockdown levels. RAP throughput during Level 2 restrictions has recovered to approximately 60% of pre lockdown levels.
As part of the Company’s response to COVID-19, all major maintenance was suspended, except where required to maintain Refining NZ’s uncompromising focus on health and safety. The main change has been the deferral of the main crude distiller and gasoline manufacturing unit maintenance turnaround, which is now scheduled to occur in March 2021. Meanwhile, a partial catalyst change on the hydrocracking facility was completed as planned in March and other critical maintenance activities were completed in April, to enable the continued safe operation of plant until the rescheduled turnaround date.
As a result, capex guidance for the year has been reduced from $70 million to $40 million. The Company operated on a cash neutral basis during the COVID-19 lockdown and continues to plan to operate cash neutral through the year, when factoring in the Processing Fee Floor and reduced RAP income. Net debt was $252 million at the end of April. Refining NZ extended and expanded its bank facilities in March and its total available debt funding facilities amount to $400 million (including the Company’s $75 million subordinated notes on issue) with no significant maturities until March 2022.

The refinery continued to operate as an essential service throughout COVID Alert Levels 3 and 4. Refining NZ established a Co-ordinated Incident Management System structure to implement business continuity plans during this time and this continues at Level 2.
Refining NZ’s excellent health, safety and environment performance continued in March and April, with no Tier 1 or Tier 2 process safety events. There were again no recordable injuries and the recordable injury frequency is 0.28 per 200,000 work hours.
Workstreams for the major Strategic Review announced to the market on 15 April 2020 are ongoing and proceeding to schedule. Refining NZ expects to provide an update on the Strategic Review process in June 2020.

I agree that it's bad but the "cash flow neutral" point meant it wasn't quite as bad as I expected and leaves open the possibility of a return to profitability if/when refining volumes and margins improve (even if they end up well short of pre-Covid19 levels for some time, especially jet fuel). We also have a time line for an update on the strategic review.

Disclosure: a holding which started small and got smaller

[SailorRob]

It's not cashflow neutral at all, only because of a massive subsidy from owners/customers. So in fact burning cash just technically not their own.

[Waikaka]

I have been thinking about the implications of Covid on NZR.

Structural changes to refining market around the world so unfortunately I think it is an increasing possibility that NZR will stop the refining and become a solely distribution business. Really dependent on how the major shareholder/customers feel for medium term subsidising the refining and suspect they are not that happy. Also likely that at least medium term the volumes to be distributed will be reduced with decreased jet fuel demand so even that part will have reduced earnings.

Unfortunate this whole palaver will involve lots of redundancies at a bad time for individuals but as a shareholder as least the distribution side of the business will have a lot more stable earnings. However the value of the business as a whole is significantly reduced.

240 million in debt, bunch of assets on the book but worth less in a fire sale.

I have bought a bit more in the mid 70s but probably best to wait for the decision in June for a bit more certainty.

I spit balled what the distribution business might be worth:
Distribution earnings
2016 $23,329,000.00
2017 $23,094,000.00
2018 $44,845,000.00
2019 $37,347,000.00

average earnings of $32,153,750.00

What sort of multiple to earnings would a boring infrastructure company be worth?

[SailorRob]

I have been thinking about the implications of Covid on NZR.

Structural changes to refining market around the world so unfortunately I think it is an increasing possibility that NZR will stop the refining and become a solely distribution business. Really dependent on how the major shareholder/customers feel for medium term subsidising the refining and suspect they are not that happy. Also likely that at least medium term the volumes to be distributed will be reduced with decreased jet fuel demand so even that part will have reduced earnings.

Unfortunate this whole palaver will involve lots of redundancies at a bad time for individuals but as a shareholder as least the distribution side of the business will have a lot more stable earnings. However the value of the business as a whole is significantly reduced.

240 million in debt, bunch of assets on the book but worth less in a fire sale.

I have bought a bit more in the mid 70s but probably best to wait for the decision in June for a bit more certainty.

I spit balled what the distribution business might be worth:
Distribution earnings
2016 $23,329,000.00
2017 $23,094,000.00
2018 $44,845,000.00
2019 $37,347,000.00

average earnings of $32,153,750.00

What sort of multiple to earnings would a boring infrastructure company be worth?


That's earnings before maintenance expenses, and for distribution business CAPEX is still pretty big with tank maintenance. Those are not the numbers i'd be applying the multiple too.

[bull....]

dont forget as an import terminal operator NZR earnings are dictated by what storage fees they charge the oil majors and int standards in these matters are they are not fixed fee's that NZR could charge. so dont expect nice steady earnings going forward either if they decide on this option.

[Sharp737]

Anybody know the seller on Friday? Over 9M sold
Also I note that margins have taken a hike in last week. Best for a while I believe

An opportunity?

[Sideshow Bob]

Anybody know the seller on Friday? Over 9M sold
Also I note that margins have taken a hike in last week. Best for a while I believe

An opportunity?

i think was the MSCI index - NZR is out and rebalancing of funds.

[SailorRob]

Anybody know the seller on Friday? Over 9M sold
Also I note that margins have taken a hike in last week. Best for a while I believe

An opportunity?

Taken a big hike. All the way up to NEGATIVE $3.50 a Barrel

[Sharp737]

True, margins bad alright. But a bit of movement in last day or two....up around 10%
Must be coming close to an announcement perhaps on the strategy going forward

[Sharp737]

Hmmmm now up to 84c to 85c from 70c odd a few days ago.... Announcement of Strategic Review imminent?

[Joshuatree]

Review due out this month and gossip around the traps that IFT may be int in NZR. Sky tv is the other IFT takeover rumour ask ogg

[percy]

Review due out this month and gossip around the traps that IFT may be int in NZR. Sky tv is the other IFT takeover rumour ask ogg

Jee Whiz IFT are going to busy.
And to think I thought they were raising all that capital to take a placement in PAZ.

[Joshuatree]

Aaaah;) so IFT have already contacted you about selling PAZ , one of the bigger holders you:t_up:. Way bigger then me anyways.

[percy]

Aaaah;) so IFT have already contacted you about selling PAZ , one of the bigger holders you:t_up:. Way bigger then me anyways.

No,but I am waiting for their call.!...
Expect they call before the 7th August result....lol.

[Waikaka]

Seems short sighted to me:

https://www.stuff.co.nz/business/121881079/nz-could-cope-without-its-own-oil-refinery-analyst-says

Nothing new that I can see but posted as may be of interest.

[macduffy]

Seems short sighted to me:

Agree. One of those things you don't need - until you need it!

[traineeinvestor]

A nothingburger of an announcement today.

But seems to be steering towards a shift to an import only operation.

[Sharp737]

Jumped in an bought some actually. We'll see what happens. But I wonder what's going on that is not given publicly...yet anyways. We'll find out in due course

[Mya]

Their decision they were going to issue at the end of this month after the review did not come to fruition. They are still reviewing "multiple options" and will issue a new decision in October (after the elections) so my take is that they are going to turn into a terminal operation but are postponing public release of that decision because they do not want to hurt Winnie's seat.

BOC and Air Liquide are both now investigating (at a high level) moving their CO2 plants elsewhere. Before this update came out BOC were not considering any meaningful change to the refinery with respect to their operation, that has now changed so I imagine they have been told to start considering the real possibility of ceasing refinery operations.

[SailorRob]

Their decision they were going to issue at the end of this month after the review did not come to fruition. They are still reviewing "multiple options" and will issue a new decision in October (after the elections) so my take is that they are going to turn into a terminal operation but are postponing public release of that decision because they do not want to hurt Winnie's seat.

BOC and Air Liquide are both now investigating (at a high level) moving their CO2 plants elsewhere. Before this update came out BOC were not considering any meaningful change to the refinery with respect to their operation, that has now changed so I imagine they have been told to start considering the real possibility of ceasing refinery operations.


Didn't you say in May that BOC had been told no more supply from September?

[bull....]

New Zealand's only oil refinery appears to be headed towards conversion to a terminal to import refined fuel and deliver it to Auckland

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12348034

this is the key point if they go the terminal route

Allen said while Refining NZ was committed to delivering the best outcome for shareholders over the long term

​

[hogie]

New Zealand's only oil refinery appears to be headed towards conversion to a terminal to import refined fuel and deliver it to Auckland

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12348034

this is the key point if they go the terminal route

Allen said while Refining NZ was committed to delivering the best outcome for shareholders over the long term

​


"Long term" = divvies ... hopefully they resume some day :)

[bull....]

"Long term" = divvies ... hopefully they resume some day :)

some day maybe in the long term. I see Z is positioning there terminal business and reducing exposure to refining margins from there announcement today. It is a supporter of RNZ becoming a terminal operator only i believe.

[SeanL]

general thought here,

If NZR is moving to convert to terminal operation, would a merger with MMH not become a viable option? restructuring refinery infrastructure and replacing it with storage could decrease the refineries overall footprint, allowing MMH to increase in size, potentially it could use the land earmarked for the solar farm which got put on the back burner. pipeline stays open and normal distribution of refined products continues. take some load off Auckland port? Less jobs lost in the area, removes some pressure from finding an instant solution for Auckland port?

Just a thought...

[Sharp737]

Yes those are interesting thoughts.

But what I liked in todays report was the paragraph that said "The GRM improved significantly compared to the prior period to be USD 4.59
per barrel, with an above average uplift of USD 8.37 per barrel over a weak
Singapore Dubai complex margin of USD -3.78 per barrel. Key contributors to
the increased uplift were due to COVID-19 impacts on demand."

To me, that was the best positive we have seen in quite some time

[RTM]

general thought here,

If NZR is moving to convert to terminal operation, would a merger with MMH not become a viable option? restructuring refinery infrastructure and replacing it with storage could decrease the refineries overall footprint, allowing MMH to increase in size, potentially it could use the land earmarked for the solar farm which got put on the back burner. pipeline stays open and normal distribution of refined products continues. take some load off Auckland port? Less jobs lost in the area, removes some pressure from finding an instant solution for Auckland port?

Just a thought...

Does it even make sense to have just a tank terminal at Marsden ?
Great bit of real estate. Think about what Oceania could create. Maybe it could go somewhere closer to the large population...and instead of pumping from Marsden Point to Auckland (I guess it is down hill) through an old dodgy pipeline....just pump from somewhere in Auckland to Wiri.

I have no idea what I am saying....could it be pumped directly from the Auckland Harbour somewhere to tank storage in say Wiri without the boats even needing to dock ?

[SailorRob]

Yes those are interesting thoughts.

But what I liked in todays report was the paragraph that said "The GRM improved significantly compared to the prior period to be USD 4.59
per barrel, with an above average uplift of USD 8.37 per barrel over a weak
Singapore Dubai complex margin of USD -3.78 per barrel. Key contributors to
the increased uplift were due to COVID-19 impacts on demand."

To me, that was the best positive we have seen in quite some time

Focus on the next paragraph;

Firstly, significant demand for floating storage caused increases in both crude oil VLCC shipping costs to Singapore and finished product shipping costs to New Zealand. Secondly, Abu Dhabi crudes processed at the refinery were heavily discounted relative to Dubai crude.

This was the one off reason for the uplift. Unfortunately nothing fundamentally positive here at all.

[Sharp737]

Focus on the next paragraph;

Firstly, significant demand for floating storage caused increases in both crude oil VLCC shipping costs to Singapore and finished product shipping costs to New Zealand. Secondly, Abu Dhabi crudes processed at the refinery were heavily discounted relative to Dubai crude.

This was the one off reason for the uplift. Unfortunately nothing fundamentally positive here at all.





Yes saw that but we shall see see. This going to be interesting. Tank terminal only? This is not a given. It may or may not. Even though things have been tough and have looked bad for some time, some of us believe 'not'.

[SailorRob]

Yes saw that but we shall see see. This going to be interesting. Tank terminal only? This is not a given. It may or may not. Even though things have been tough and have looked bad for some time, some of us believe 'not'.

Unfortunately it is a given. 100% Guaranteed unless the taxpayer was to fund it long term.

The only issue is when. Look at the capital allocation over 15 years, any capital invested or earnings that are retained are quickly destroyed. There is no way out of that. Occasionally it can make a return on 'price' but never a return on invested capital, and that is what the game is all about.

If you can buy in at massive discounts to book value as you can now then you might see a return short term but as a company huge amounts of capital have to be found to keep things going and over the whole cycle it has been conclusively proven that this capital is destroyed.

There is no hope it's just time.

[bull....]

yep and they will burn thru heaps of capital even if they decide to convert to a terminal. the rising exchange rate at the moment is not good either probably going higher

[SailorRob]

yep and they will burn thru heaps of capital even if they decide to convert to a terminal. the rising exchange rate at the moment is not good either probably going higher

Yes huge amounts, specially when you consider the demolition and remediation of the process units.

The amount of capital required for the actual terminal conversion varies a lot with the size. If it was just a small terminal for Auckland/Northland and the remediation work could be put off for a few years then might not be so much but otherwise you could be looking towards a Billion bucks and will take a bit of terminal revenue to pay for that kind of investment. Can look to Australia for some rough ideas on the numbers.

[bull....]

guess the size of the storage terminal depends on the oil majors plans for distribution around NZ

[Sharp737]

Unfortunately it is a given. 100% Guaranteed unless the taxpayer was to fund it long term.

The only issue is when. Look at the capital allocation over 15 years, any capital invested or earnings that are retained are quickly destroyed. There is no way out of that. Occasionally it can make a return on 'price' but never a return on invested capital, and that is what the game is all about.

If you can buy in at massive discounts to book value as you can now then you might see a return short term but as a company huge amounts of capital have to be found to keep things going and over the whole cycle it has been conclusively proven that this capital is destroyed.

There is no hope it's just time.

100% guaranteed? Care to make a little wager? SailorRob and Bull, lets just wait and see say in a year or two.
Just joking about the wager but I'll remember these comments

[Waikaka]

My suspicion is that the refinery part of the business is dead. If the major shareholders are no longer happy with the tolling arrangement, then it is only a matter a time until the refinery is retired, it is just too small to compete with Asia. I had hoped that its strategic nature might make it untouchable but seems like it will go the way of the Australian refineries which a real shame for the community.

In their own words "The refinery employs 400 staff, with an average of 250 contractors also employed on a long-term basis. In total, an estimated 1,100 Northland jobs are dependent on the refinery, with the refinery contributing around 7 percent of Northland’s GDP. Another 2,400 jobs in specialist services across the country are also dependent on work provided at Marsden Point."

Wiri holds like 6 days of demand (pre-covid), if every tank was full with none under repair it holds 116 million litres.

Marsden does all the significant storage and blending, their single largest tank holds 80 million litres, to give you a sense of the size difference. Crude oil is shipped into Marsden on vessels carrying around 100-150 million litres. You could try to double Wiri and it wouldn't even come close to what is needed, a ship used to arrive about once a week at Marsden. I cant seem to find a number for total storage at Marsden point but it is large and it is the only realistic option for providing flexibility to NZ supply.

Likely you couldn't even get large tankers into the Waitemata or Manakau harbour so upgrading Wiri is not feasible.

But what do I know, 50% down on this one, worst performer for a long time.

[SailorRob]

100% guaranteed? Care to make a little wager? SailorRob and Bull, lets just wait and see say in a year or two.
Just joking about the wager but I'll remember these comments


No wish to make a little wager.

Very interested in a large wager.

Waiting to hear from you, svchieftain@gmail.com.

Cheers.

[Sideshow Bob]

Refining NZ announces non-cash impairment4/8/2020, 8:30 am MKTUPDTERefining NZ today announced that it expects to recognise a non-cash impairment charge in the order of $220 million before tax ($158 million after tax) in the 2020 half-year results.
The impairment charge is primarily due to revised refining margin assumptions, reflecting the excess refining capacity in the Asia-Pacific region and the effects of the COVID-19 pandemic on transport fuel demand, particularly jet demand. Refining NZ sets its long-term refining margin assumptions based on independent energy analyst forecasts.
The company remains comfortably within the 45% senior debt gearing covenant under its Facility Agreements at 27% following the impairment, which will also not impact on interest cover ratios that the company continues to meet in the current low margin fee floor environment.
The impairment charge is a non-cash item and is subject to finalisation and Board approval of the half-year financial statements.
Refining NZ will release its 2020 half-year results on 17 August 2020.
Ends.

[SailorRob]

Refining NZ announces non-cash impairment

4/8/2020, 8:30 amMKTUPDTERefining NZ today announced that it expects to recognise a non-cash impairment charge in the order of $220 million before tax ($158 million after tax) in the 2020 half-year results.
The impairment charge is primarily due to revised refining margin assumptions, reflecting the excess refining capacity in the Asia-Pacific region and the effects of the COVID-19 pandemic on transport fuel demand, particularly jet demand. Refining NZ sets its long-term refining margin assumptions based on independent energy analyst forecasts.
The company remains comfortably within the 45% senior debt gearing covenant under its Facility Agreements at 27% following the impairment, which will also not impact on interest cover ratios that the company continues to meet in the current low margin fee floor environment.
The impairment charge is a non-cash item and is subject to finalisation and Board approval of the half-year financial statements.
Refining NZ will release its 2020 half-year results on 17 August 2020.
Ends.


This impairment charge is primarily due to.... massive and sustained miss allocations of capital, reflecting that over the last 12 years 93% of cash flows generated have gone right back into the plant where they have quickly been vaporised.

Non cash?? It is VERY REAL cash. Non cash in this accounting period perhaps.

It is definitely non cash to the directors and management though that is for sure.

[Leemsip]

Nice little update

Loosing a bunch of cash, debt maturities approaching (but not here yet) and look challenging to refinance, changing the business model to become a storage area with little value add, external environment unfavourable, debt to equity ratio going to blow out, legacy costs enormous, still spending $20m capex despite trying to exit current business.

Im thinking about getting in!

[bull....]

Nice little update

Loosing a bunch of cash, debt maturities approaching (but not here yet) and look challenging to refinance, changing the business model to become a storage area with little value add, external environment unfavourable, debt to equity ratio going to blow out, legacy costs enormous, still spending $20m capex despite trying to exit current business.

Im thinking about getting in!

you forgot ..little chance of a dividend for years

[SailorRob]

Anyone have any idea why there is 30 million cash sitting on the balance sheet, freshly borrowed?

More than at any time over the last 10 years...

Also first half looks anything but cash neutral - spent 22 million on Capex from only 13 net cash generated. Difference also borrowed.

[RTM]

Anyone have any idea why there is 30 million cash sitting on the balance sheet, freshly borrowed?

More than at any time over the last 10 years...

Also first half looks anything but cash neutral - spent 22 million on Capex from only 13 net cash generated. Difference also borrowed.

Redundancy payments ?
��

[traineeinvestor]

Anyone have any idea why there is 30 million cash sitting on the balance sheet, freshly borrowed?



Directors' fees.

[Balance]

Directors' fees.

Good one! 🤣

[Scrunch]

Anyone have any idea why there is 30 million cash sitting on the balance sheet, freshly borrowed?

More than at any time over the last 10 years...

Also first half looks anything but cash neutral - spent 22 million on Capex from only 13 net cash generated. Difference also borrowed.

You sometimes get extra borrowing held as cash when companies have doubt about the ability to access the headroom in their borrowing facilities. Sometimes companies believe or have been advised their borrowing limit is a sinking lid. You therefore don't pay down debt as you won't be able to redraw. Sometimes you borrow more of the facility and hold it as cash so as to ensure that operationally it remains available. No idea whether this is the case at NZR.

[SailorRob]

You sometimes get extra borrowing held as cash when companies have doubt about the ability to access the headroom in their borrowing facilities. Sometimes companies believe or have been advised their borrowing limit is a sinking lid. You therefore don't pay down debt as you won't be able to redraw. Sometimes you borrow more of the facility and hold it as cash so as to ensure that operationally it remains available. No idea whether this is the case at NZR.

You've hit the nail on the head I think Scrunch. I was thinking the same thing. In order for them to be able to do their shutdown next year...

[waikare]

From the NZX

S&P/NZX 50 & S&P/NZX 50 Portfolio Index – Effective at the Open on September 21, 2020
Action Code Company
Addition SKO Serko Limited
Removal NZR The New Zealand Refining Company Limited

[bull....]

huge buyer for 6 million shares at half a cent

[Slim]

Hopefull at best. Saw that and thought ohhhh the cheek :eek2:

[Sharp737]

Hmmmm 8 million shares through on Friday at the close for 61c. That's a biggie

[cyclist]

Hmmmm 8 million shares through on Friday at the close for 61c. That's a biggie

Related to removal from the NZX, as per Waikare's post above I would guess.

Also talk of a "quarterly rebalance" on other threads, explaining the big volume in some of the large caps on close. (In truth, I don't really know what that is!)

[bull....]

hilarious that the oil majors are getting upset that they have to give money to NZR because of the processing agreement , they were not complaining about the cap they put in the agreement for when margins were good lol

https://www.nzx.com/announcements/360219

[Nor]

Have just struggled through this entire thread. Very interesting. Seems to me that the low 60c sp is not due to the oil and gas industry being at death's door. The producers may have to write off some reserves that will never be needed but there will be a role for refineries for decades to come. Marsden Point is at a disadvantage to the asian mega refineries particularly in an oversupply situation but there must be a good chance that overcapacity will be absorbed as things return to normal.
It's very clear from the thread that this is a cyclical industry. SP at 60c equates to as little as 5 years dividends in average years.
I think non oil company shareholders would be best off by far by continuing to run the refinery at fee floor until times improve. Which going on past history could be very soon. Continuing to run the refinery would make most sense if capital expenditure is kept to a minimum as value is extracted from it.
Probably in the oil companies best interests to keep it going too.

[macduffy]

I think you can be sure that the refinery will be run in the oil companies' best interests. They are the majority shareholders.

[Nor]

~42% owned by mobil, z and bp, combined.

[SailorRob]

~42% owned by mobil, z and bp, combined.


Nor, follow the money.

Forget the dividend, look at the cash that has come through the front door over the last decade and examine what has been done with it.

Correct the oil/gas industry isnt at deaths door, probably in its early days if anything. However this has no relation to boiling oil on a beach in Northland. Correct also regarding the non oil company shareholders as they would be getting subsidised by the oil co's which common sense will tell you wont continue for long.

What you need to figure out is how much free cash can be generated by a terminal and what will the costs be to convert and then demolish the existing Refinery. Can get figures from the Australian ones they have done similar to.

[Nor]

I see there is pretty much a consensus that most capital expenditure has been wasteful, but Te Mahi Hou at least by lifting the margin could pay off in this low margin environment though it didn't do much when the cap was being exceeded. I just reckon they should run it into the ground so to speak and get some of that capital back while they can.
I wonder what the wording of the processing agreement is and if the oil companies can just walk away from it. Also wonder if they would be able to vote on matters regarding it or if they would have to abstain?

[SailorRob]

I see there is pretty much a consensus that most capital expenditure has been wasteful, but Te Mahi Hou at least by lifting the margin could pay off in this low margin environment though it didn't do much when the cap was being exceeded. I just reckon they should run it into the ground so to speak and get some of that capital back while they can.
I wonder what the wording of the processing agreement is and if the oil companies can just walk away from it. Also wonder if they would be able to vote on matters regarding it or if they would have to abstain?


A team of specialist lawyers would struggle with the agreement. I think they can vote on all matters however I'm not 100% sure.

Te Mahi Hou will never pay off under any circumstance and this much was clear long before it was built. $365 million, an appropriate return on that invested capital would be $35 million a year, the whole company hardly does that. It's not even that CAPEX is wasteful that is the real problem, the real problem is that virtually all cashflow has to go into CAPEX. IF it was only half and that was wasteful then ok you can still survive...

[Nor]

A team of specialist lawyers would struggle with the agreement. I think they can vote on all matters however I'm not 100% sure.

Te Mahi Hou will never pay off under any circumstance and this much was clear long before it was built. $365 million, an appropriate return on that invested capital would be $35 million a year, the whole company hardly does that. It's not even that CAPEX is wasteful that is the real problem, the real problem is that virtually all cashflow has to go into CAPEX. IF it was only half and that was wasteful then ok you can still survive...

It seems to have been an expensive toy funded by shareholders. But all free cash flow doesn't have to continue to go to capex, they could come to their senses so to speak and just maintain it while generating what returns they can. This solar farm seems to be just another wasteful fun project which shouldn't go ahead.

[SailorRob]

It seems to have been an expensive toy funded by shareholders. But all free cash flow doesn't have to continue to go to capex, they could come to their senses so to speak and just maintain it while generating what returns they can. This solar farm seems to be just another wasteful fun project which shouldn't go ahead.

Solar farm long dead. Yeah unfortunately even maintenance costs consume most of the cash flow. Though if the toy hadn't be built things would be different.

Announcement tomorrow morning.

[Sideshow Bob]

https://www.nzx.com/announcements/360901

Refining NZ finalises simplified refinery plans5/10/2020, 9:00 am MKTUPDTEOn 25 June 2020, Refining NZ announced completion of the first phase of its Strategic Review, taking forward a near-term proposal to simply refinery operations and in parallel explore with customers a possible future staged transition to an import terminal.
The Company has now finalised its proposal to operate the refinery in 2021 under the current Processing Agreement, which will enable it to extend cash neutral operations in a low-margin environment at the Fee Floor.
This proposal includes:
• Reducing refinery throughput to 90,000 bbls/day (equivalent to levels at the time of commencement of the Processing Agreement in 1995) and the cessation of bitumen production;
• c$20M reduction in opex compared with 2020 primarily through lower labour and other costs;
• Undertaking the deferred 2020 turnaround of Crude Distillation Unit 1 and the CCR Platformer. Total capex for 2021 is forecast at $50M; and
• Estimated restructuring costs in 2020 of c$5M, which will be funded using proceeds from asset sales.
The simplification proposal for 2021 follows the action already taken in 2020 to reset the cost base to Fee Floor levels through $70M in opex and capex cost reductions.
During the last quarter, the Company has also progressed import terminal discussions with customers. These discussions are ongoing and any decision to proceed with a conversion to an import terminal will ultimately be a decision voted on by non-customer shareholders.
Refining NZ chairman Simon Allen said: “We are pleased we have been able to find a way to continue operating the Marsden Point refinery in the most challenging environment Refining NZ has faced since deregulation of the oil industry in 1988. Our focus at this time is on operating the refinery safely and on our people who are impacted by the changes we need to make. We are working closely with local, regional and national authorities and agencies to ensure that the proposed transition is smooth and the impact on our people and the region is minimised.”
For further information:
Ellie Martel
Government and External Affairs Manager
Ellie.Martel@refiningnz.com
+64 (0)20 4174 7226

[peat]

you were pretty much on the money Nor....
limp along... do what they can...

[Waikaka]

https://www.theleader.com.au/story/6193816/caltex-site-conversion-works-completed/

Kurnell refinery was about the same size as Marsden point and cost 200m AUD to decommission and convert to an import terminal.

NZR Mkt cap is down to $190Mil, debt is $250Mil.

Infrastructure assets are on the books for:

Refinery to Airport pipeline = $105Mil
Jetty and buildings = $94.3Mil
Freehold land = $26.8Mil
Catalysts = $35Mil
Oil, cash and receivables of $163Mil

and the elephant of $790Mil of refinery kit.

Not much of a puff left in it but I am still modestly adding to my holdings on the belief that the essential infrastructure underlying the business is at a discount, the strategy of hauling back on production, trying to keep oil company shareholders happyish, continue to be cashflow neutral and avoiding decommissioning means that post-covid significant value could be released.

I am only happy to support a business dying in the gutter if it has the ability to produce significant free cashflow and has quality underlying assets. Less debt would be nice but cant be too fussy when feeding in unloved parts of the market. NZR fits well with my portfolio of deeply unloved stocks that everyone has given up on.

[SailorRob]

https://www.theleader.com.au/story/6193816/caltex-site-conversion-works-completed/

Kurnell refinery was about the same size as Marsden point and cost 200m AUD to decommission and convert to an import terminal.

NZR Mkt cap is down to $190Mil, debt is $250Mil.

Infrastructure assets are on the books for:

Refinery to Airport pipeline = $105Mil
Jetty and buildings = $94.3Mil
Freehold land = $26.8Mil
Catalysts = $35Mil
Oil, cash and receivables of $163Mil

and the elephant of $790Mil of refinery kit.

Not much of a puff left in it but I am still modestly adding to my holdings on the belief that the essential infrastructure underlying the business is at a discount, the strategy of hauling back on production, trying to keep oil company shareholders happyish, continue to be cashflow neutral and avoiding decommissioning means that post-covid significant value could be released.

I am only happy to support a business dying in the gutter if it has the ability to produce significant free cashflow and has quality underlying assets. Less debt would be nice but cant be too fussy when feeding in unloved parts of the market. NZR fits well with my portfolio of deeply unloved stocks that everyone has given up on.

There are opportunities in the Deep value space and particularly oil and gas right now that you only get a handful of times in a lifetime.

This is not one of them.

You might do really well out of this at current prices or you might not. This is speculation, not investing. The fact there are so many far better opportunities in this space makes it even less appealing to speculate in front of a train.

A quick glance at the half year cash flow statement will tell you that they’re anything but cash neutral, spent 22 million on predominantly tank maintenance first half alone. Also the cash isn’t neutral at all, it’s a subsidy from the customers which will not last.

Debt is at 280 million not 250, yes there’s 30 cash sitting there but it’s been borrowed for a reason.

No question the terminal and infrastructure assets have value, but already a lot of debt and conversion money tied up in them. You just have to work out the cash the terminal would make which involves having a good handle on the CAPEX - which will have a lot of tank maintenance attached and then apply a 20 or even 25 multiple to that. Not much left for debt reduction.

There is NO ability to produce any cash flow let alone significant free cash flow.

But boy is there some stuff out there now that can in this space, massive free cash flow yields everywhere you look.

[Nor]

There are opportunities in the Deep value space and particularly oil and gas right now that you only get a handful of times in a lifetime.

This is not one of them.

You might do really well out of this at current prices or you might not. This is speculation, not investing. The fact there are so many far better opportunities in this space makes it even less appealing to speculate in front of a train.

A quick glance at the half year cash flow statement will tell you that they’re anything but cash neutral, spent 22 million on predominantly tank maintenance first half alone. Also the cash isn’t neutral at all, it’s a subsidy from the customers which will not last.

Debt is at 280 million not 250, yes there’s 30 cash sitting there but it’s been borrowed for a reason.

No question the terminal and infrastructure assets have value, but already a lot of debt and conversion money tied up in them. You just have to work out the cash the terminal would make which involves having a good handle on the CAPEX - which will have a lot of tank maintenance attached and then apply a 20 or even 25 multiple to that. Not much left for debt reduction.

There is NO ability to produce any cash flow let alone significant free cash flow.

But boy is there some stuff out there now that can in this space, massive free cash flow yields everywhere you look.

This tank farm idea seems a bit odd. The company would go to enormous expense (both new and writing off the old) to provide an alternative to the service it currently provides, but if they were not so philanthropic the customers would have to use the existing one anyway.

[bull....]

plain and simple your not going to get a return as a shareholder for many years what ever they choose to do.

[Leemsip]

Any companies in particular to look into Rob? Thinking about putting some $$ into energy but stuck as to where to research first....

[SailorRob]

Any companies in particular to look into Rob? Thinking about putting some $$ into energy but stuck as to where to research first....


The safest way to play it is to buy one of the Oil/Gas ETF's, either FENY, XLE or VDE. They both hold over 100 companies but weighted to the majors. You need a 3-5 year time horizon and to be able to thrive on volatility. They currently have yields of 6/8%.

I am personally investing in ExxonMobil the creme de la creme. You can buy it now at the March lows, yielding over 10%. This is just truly unbelievable. This is the blue chip of blue chips, recently the biggest company in America. You can get their dividend history since 1922 from their website. They have raised the dividend every year for 25 years. Counter cyclic capital allocators. Some good interviews with the CEO recently on CNBC (or you-tube).

I'd take a bet with any NZ fund manager that XOM would destroy their performance over the next decade. As well as the NZ50 and SP500...

For Midstream EPD is the best of the best, currently yielding over 11% and extremely safe.

Closer to home this is well worth a watch. https://www.livewiremarkets.com/wires/if-you-aren-t-long-energy-now-you-probably-never-will-be.

For a bit more risk and potentially much more reward, Occidental Petroleum. Lots to unpack here but a massive opportunity alongside Buffett and Icahn. Icahn is currently buying the very warrants he created, on the open market in massive volumes.

For Coal, ARLP, or David Einhorns CCR.

My advice - unless you really know what you're talking about, keep it simple and you cant go wrong.

Happy to help with more information.

R

[Leemsip]

Thanks Rob. Awesome start for me.

[Traderx]

The safest way to play it is to buy one of the Oil/Gas ETF's, either FENY, XLE or VDE. They both hold over 100 companies but weighted to the majors. You need a 3-5 year time horizon and to be able to thrive on volatility. They currently have yields of 6/8%.

I am personally investing in ExxonMobil the creme de la creme. You can buy it now at the March lows, yielding over 10%. This is just truly unbelievable. This is the blue chip of blue chips, recently the biggest company in America. You can get their dividend history since 1922 from their website. They have raised the dividend every year for 25 years. Counter cyclic capital allocators. Some good interviews with the CEO recently on CNBC (or you-tube).

I'd take a bet with any NZ fund manager that XOM would destroy their performance over the next decade. As well as the NZ50 and SP500...

For Midstream EPD is the best of the best, currently yielding over 11% and extremely safe.

Closer to home this is well worth a watch. https://www.livewiremarkets.com/wires/if-you-aren-t-long-energy-now-you-probably-never-will-be.

For a bit more risk and potentially much more reward, Occidental Petroleum. Lots to unpack here but a massive opportunity alongside Buffett and Icahn. Icahn is currently buying the very warrants he created, on the open market in massive volumes.

For Coal, ARLP, or David Einhorns CCR.

My advice - unless you really know what you're talking about, keep it simple and you cant go wrong.

Happy to help with more information.

R

Hi @sailorrob what is your take on SHLX https://www.shellmidstreampartners.com Looks like another beaten down mid-stream operator. Huge yield.

[SailorRob]

Hi @sailorrob what is your take on SHLX https://www.shellmidstreampartners.com Looks like another beaten down mid-stream operator. Huge yield.

Sorry Traderx only just saw your question, SHLX is a good company too and has the connection with Shell of course. I owned it and sold to concentrate into EPD which is a higher quality company and hence has a lower yield. I'm not familiar enough with SHLX to really say too much more however can send you some articles if you wish, my contact details are further up in this thread.

They could have to reduce that dividend but I very much doubt EPD will.

Also be aware of the tax rate on these MPL dividends, it will be withheld at 37% rather than the 15% with normal non MLP dividends.

[SailorRob]

Waikaka you liked the NZR price when it was double and triple what it is now, so you must be absolutely loving it now!

Bargain!

[bull....]

Waikaka you liked the NZR price when it was double and triple what it is now, so you must be absolutely loving it now!

Bargain!

bargain lol they havnt even started to write down there assets yet , make the discount to NTA not so much of a discount even at these prices

[Nor]

Still think it's ridiculous. Refinery can't make a profit because it's cheaper overseas. But is there anyway of getting it here? No, at least not in the required quantities. Were it not for onerous agreements refinery is ideally placed to make such huge profits that it would be regulated. If it was regulated at least there would be a return.
Before anyone says it I will save them the bother - I don't know what I'm talking about.

[Waikaka]

Waikaka you liked the NZR price when it was double and triple what it is now, so you must be absolutely loving it now!

Bargain!

NZR has been pretty disappointing but over the years I have found that staying the course, long term things should settle down. I just about always get the timing wrong with these things so always have cash to top up as they drop. Lot easier doing this now that low brokerage offering are out there.

Started buying small amounts of NZR in Oct 2019 (no talk of Covid then!) and have only bought since then. 2nd worse stock in my diversified portfolio of junk behind Transocean.

Sharesight tells me I am 56% down on NZR and snip of purchases below shows how dedicated I am to gutter stocks:)
12034

Off topic but my other stocks have done well and overall not unhappy.

I didn't start it and again off topic but Ill be honest I pivoted post covid to buying a decent amount of:
SLB: NYSE
XOM: NYSE
CVX: NYSE
STO:ASX
WPL:ASX
KEX: NYSE

Astonishing SLB can still pay quarterly dividends at a time like this. Remarkable company and good to work with.

Plenty of fish in the sea so happy to come back and check on NZR in a few years.

[SailorRob]

Still think it's ridiculous. Refinery can't make a profit because it's cheaper overseas. But is there anyway of getting it here? No, at least not in the required quantities. Were it not for onerous agreements refinery is ideally placed to make such huge profits that it would be regulated. If it was regulated at least there would be a return.
Before anyone says it I will save them the bother - I don't know what I'm talking about.

Nor, with all due respect you hit the nail on the head with the last sentence!

It's not because it's cheaper overseas, it's because it's cheaper to land refined fuel here in NZ.

The 'onerous agreements' have nothing to do with it with the exception they are getting a 143 million dollar subsidy to stay alive right now, without the agreement they were dead a long time ago.

Take all agreements away and you're left with the fact that you cannot ship crude to a beach in Northland, then turn it into a variety of high quality refined products and distribute around the country for less than you can pick up the phone and order finished product direct to NZ.

No different to any other commodity product or whatever. Good luck to importing raw materials and then manufacture into high quality commodity products here with a labor productivity rate of 60% of the OECD average and doing it cheaper.

Throw in having to operate under a quasi communist regime and then you're really screwed.

[SailorRob]

NZR has been pretty disappointing but over the years I have found that staying the course, long term things should settle down. I just about always get the timing wrong with these things so always have cash to top up as they drop. Lot easier doing this now that low brokerage offering are out there.

Started buying small amounts of NZR in Oct 2019 (no talk of Covid then!) and have only bought since then. 2nd worse stock in my diversified portfolio of junk behind Transocean.

Sharesight tells me I am 56% down on NZR and snip of purchases below shows how dedicated I am to gutter stocks:)
12034

Off topic but my other stocks have done well and overall not unhappy.

I didn't start it and again off topic but Ill be honest I pivoted post covid to buying a decent amount of:
SLB: NYSE
XOM: NYSE
CVX: NYSE
STO:ASX
WPL:ASX
KEX: NYSE

Astonishing SLB can still pay quarterly dividends at a time like this. Remarkable company and good to work with.

Plenty of fish in the sea so happy to come back and check on NZR in a few years.

Hope you're not paying for Sharesight, bloody awful. Few minutes in Google Sheets and you can build something far better than their rubbish.

Gutter stocks are great and will outperform if you have the right ones.

However to be worth something an investment must produce cashflows not fake earnings due to aggressive accounting. Considering NZR has produced no cashflow over the last 10 years that hasn't been invested back into the plant and quickly destroyed, essentially it's worthless.

Some value in some of the assets but weighed against the debt and the cost of getting rid of the rusting heap as well as uncertainty of the costs of running a terminal etc it's just pure speculation.

Compare it's actual cash generation free to be distributed to investors over 10 years VS Steel and Tube. Now there is a pristine gutter stock.

Now those other stocks you mentioned, you will do exceptionally well with them.

[Nor]

Nor, with all due respect you hit the nail on the head with the last sentence!

It's not because it's cheaper overseas, it's because it's cheaper to land refined fuel here in NZ.

The 'onerous agreements' have nothing to do with it with the exception they are getting a 143 million dollar subsidy to stay alive right now, without the agreement they were dead a long time ago.

Take all agreements away and you're left with the fact that you cannot ship crude to a beach in Northland, then turn it into a variety of high quality refined products and distribute around the country for less than you can pick up the phone and order finished product direct to NZ.

No different to any other commodity product or whatever. Good luck to importing raw materials and then manufacture into high quality commodity products here with a labor productivity rate of 60% of the OECD average and doing it cheaper.

Throw in having to operate under a quasi communist regime and then you're really screwed.

Seems obvious to me that there is not enough capacity in NZ to land all we need from overseas because if there was how could converting Marsden to an import terminal work? There would be no demand for it if we already had the capacity.
As for the subsidy, very generous I don't think. Without regulation and without these agreements the refinery could make much more.

[SailorRob]

Seems obvious to me that there is not enough capacity in NZ to land all we need from overseas because if there was how could converting Marsden to an import terminal work? There would be no demand for it if we already had the capacity.
As for the subsidy, very generous I don't think. Without regulation and without these agreements the refinery could make much more.

Of course there is always demand for a cheaper service irrespective of capacity. With a pipeline to Auckland from a deep water terminal in the North you can compete with any other capacity.

That aside, correct the capacity does not exist without the Marsden Point terminal. So as Refining NZ do you import oil and refine on the beach then pump the product down the line, or do you import finished product far cheaper and do the same thing?

With the same regulations that Refiners face in Asia or refinery could make much more (more than nothing)? Yes, but what relevance does this have to anything?

Without 'these agreements' the refinery could make much more? I think you need to really think this through. Forget the agreement and think of the economics and the ownership. If the oil companies let it get shut down then it's pretty obvious that it's uneconomical.

You've been through the last 15 years of financials and seen how the floor and cap have affected income NET over this time?

[Nor]

Why do we need to invest in a cheaper import capacity when, as you admit, capacity to 100% import does not exist, and so the refinery is vital? Cheaper for everyone except the shareholders that is who are expected to write off a perfectly good refinery which the country is currently dependent on and build something else.
You suggest the companies might just shut it down.
You want me to forget the agreements and concentrate on the economics, but in the next sentence you want me to go back to the cap and floor. A bit circular. Like this discussion is becoming.

[SailorRob]

Why do we need to invest in a cheaper import capacity when, as you admit, capacity to 100% import does not exist, and so the refinery is vital? Cheaper for everyone except the shareholders that is who are expected to write off a perfectly good refinery which the country is currently dependent on and build something else.
You suggest the companies might just shut it down.
You want me to forget the agreements and concentrate on the economics, but in the next sentence you want me to go back to the cap and floor. A bit circular. Like this discussion is becoming.

No, the companies WILL shut it down, very soon. There is no other option.

No I meant without the NZR facility the capacity doesn't exist, with it there is plenty of import capacity as we will find out soon. They could go to an import facility to supply Auckland and Northland right now and more capacity isn't too hard to bring on nor too expensive (all of which we will find out over the next 12 Months).

The shareholders are not expected to write off the Refinery. They HAVE already written it off. The price to book will immediately tell you this. They just haven't written it off enough but that will come.

[Sharp737]

Why do we need to invest in a cheaper import capacity when, as you admit, capacity to 100% import does not exist, and so the refinery is vital? Cheaper for everyone except the shareholders that is who are expected to write off a perfectly good refinery which the country is currently dependent on and build something else.
You suggest the companies might just shut it down.
You want me to forget the agreements and concentrate on the economics, but in the next sentence you want me to go back to the cap and floor. A bit circular. Like this discussion is becoming.

Nor, what people are not factoring in here is what if the margins suddenly increase back to very profitable levels again? It means we are in the MONEY again. Like if there is huge political uncertainties overseas, or wars etc. and things start turning to custard. Some might say "yeah right" BUT things can change very quickly! Yes we are on a course at the moment that looks like a terminal only BUT and there is still a BIG BUT I believe....time will tell

[Nor]

Yes when I read through the thread I noted how quickly things can change even just in the normal course of business. Wars and revolutions a (deplorable ofcourse) bonus. Recover in Asia could come very soon.

[SailorRob]

Nor, what people are not factoring in here is what if the margins suddenly increase back to very profitable levels again? It means we are in the MONEY again. Like if there is huge political uncertainties overseas, or wars etc. and things start turning to custard. Some might say "yeah right" BUT things can change very quickly! Yes we are on a course at the moment that looks like a terminal only BUT and there is still a BIG BUT I believe....time will tell

Things can change very quickly, if margins improve it will make very little difference however.

The entire point is that returns have not been generated over the entire 13 or so year cycle, when margins are high it all goes back into the plant.

If margins improve significantly then the cash will be put aside for the conversion or maybe they would be stupid enough to complete the 2022 shutdown which would destroy all the cash and try and continue but obviously that wont work for long.

Nothing will go to shareholders that's for sure. You'll never get anywhere predicting global macro events, the best chance of making money would be to take me up on the wager you offered regarding the Refinery closing but I never did hear from you.

Nor there are such once in a lifetime incredible opportunities out there right now, you've read this entire thread, if you put that kind of effort into something else that's actually worthwhile it would be rewarding.

Refinery shares could go back to $1 or more in a heartbeat. No argument there.

Money placed on red or black on a roulette wheel could double too. Speculation is not investing.

If you can read a cash flow statement then you could read 13 of them. And if you do that, we would not be having this discussion.

[Nor]

Things can change very quickly, if margins improve it will make very little difference however.

The entire point is that returns have not been generated over the entire 13 or so year cycle, when margins are high it all goes back into the plant.

If margins improve significantly then the cash will be put aside for the conversion or maybe they would be stupid enough to complete the 2022 shutdown which would destroy all the cash and try and continue but obviously that wont work for long.

Nothing will go to shareholders that's for sure. You'll never get anywhere predicting global macro events, the best chance of making money would be to take me up on the wager you offered regarding the Refinery closing but I never did hear from you.

Nor there are such once in a lifetime incredible opportunities out there right now, you've read this entire thread, if you put that kind of effort into something else that's actually worthwhile it would be rewarding.

Refinery shares could go back to $1 or more in a heartbeat. No argument there.

Money placed on red or black on a roulette wheel could double too. Speculation is not investing.

If you can read a cash flow statement then you could read 13 of them. And if you do that, we would not be having this discussion.
Well actually we would be having this discussion. In fact those poor results are the reason we're having this discussion.
Returns have not been generated because the agreements prevent it. Returns are capped and not inflation adjusted. Under a different operating model they could make a profit every year. Cost plus a margin. And/or ownership of the crude and products is another obvious model. Nevermind how much it costs overseas the motorist is not going to put his car on a boat to fill up. We will have to disagree about whether nz has capacity to import all it's requirements in finished form at present. But if it did there would be little point in converting Marsden, may as well just close it down, and nobody would even notice.

[SailorRob]

Well actually we would be having this discussion. In fact those poor results are the reason we're having this discussion.
Returns have not been generated because the agreements prevent it. Returns are capped and not inflation adjusted. Under a different operating model they could make a profit every year. Cost plus a margin. And/or ownership of the crude and products is another obvious model. Nevermind how much it costs overseas the motorist is not going to put his car on a boat to fill up. We will have to disagree about whether nz has capacity to import all it's requirements in finished form at present. But if it did there would be little point in converting Marsden, may as well just close it down, and nobody would even notice.

Nor just WOW.

ANY business can make a 'profit' under an agreement of cost plus a margin. How is this relevant at all? Who is going to sign an agreement like that?

Look, you could give the refinery away free, to operate under a new structure with NO debt and then negotiate new agreements as both parties mutually agree too, (that's how agreements work) and it would still not be able to generate profit just like most Refineries in the world right now. And I doubt it could over the cycle.

Profit is a measure of how efficiently the company can import oil and refine and distribute here vs the same company owner being able to send oil to a Asian refinery and ship product here and distribute.

The oil companies would have no interest in shutting down the Refinery if it was profitable under any agreement. They would change the agreement.

Your argument is that the oil companies could give Refining NZ an above market fee and then they would be profitable. I'm beginning to think this is a wind up!

Cost plus a margin!

While they're at it why don't they start manufacturing cars as well at Refining NZ all we need is an agreement where someone pays us out manufacturing costs plus a margin and we'll be profitable.

I'll be happy to start a business to manufacture anything of your choice if you'll agree to pay my costs plus a margin, hell forget the margin just pay my costs. Forget the profit at lest we'd generate jobs and would be fun for me.

Have your lawyer draw something up, maybe you'll supply my capital to?

Regarding the capacity, I said without the Marsden Point terminal we don't have the import capacity currently, but with it we do. So I mean without the Refinery but using the Jetty and Pipeline we have plenty of import capacity. We have already run the country on full import this year, granted with reduced demand.

So the option as you say of shutting down the whole operation is not viable, you need the terminal and pipe.

[Nor]

My argument is not that the oil companies could give Refining NZ an above market fee. My argument (right or wrong) is that if they chose to, or had chosen to in the past, they could or could have demanded it. Based on limited import capacity.
If you think that we currently have import capacity taking Marsden into account how do you explain the need to spend millions to convert Marsden to an import terminal?

[SailorRob]

My argument is not that the oil companies could give Refining NZ an above market fee. My argument (right or wrong) is that if they chose to, or had chosen to in the past, they could or could have demanded it. Based on limited import capacity.
If you think that we currently have import capacity taking Marsden into account how do you explain the need to spend millions to convert Marsden to an import terminal?


Perhaps they could have held them to ransom like that however they would be holding themselves to ransom as they are the owners too.

It's like saying that a port or airport can charge above market fees as they are a monopoly, doesn't work for a number of reasons and ultimately the NZ fuel user would be paying - would not go down with regulators.

'You have to use us so this is what you're going to pay' type of scenario, not impossible I agree but unlikely to be sustainable. Competition if nothing else would soon have sorted that type of behavior out.

There is sufficient capacity right now to import and supply Auckland and Northland and this is one of the options, the rest of the country can also be supplied now as well however it's not as efficient.

The explanation of the need to spend more to gain greater capacity is purely a because a good return on invested capital could be earned as with the greater efficiency more market share could be supplied through Marsden Point.

Often millions is spent on things when sufficient capacity already exists because the new capacity is cheaper. There wasn't a capacity issue before Gull came along for example, the investment from Gull was not because of lack of capacity.

Look there are too many moving balls to invest here, all speculation.

And as always look at the insiders!

[Waikaka]

Honestly finding this NZR thread a bit strange. Not my favorite stock but still feel like someone has to do some research on this company rather than just letting the generalisations fly, if I were to para-phrase them they would be something like this:

1) The company is run for its major shareholder customers, minor shareholders lose out when times are good with a crazy favourable processing fee arrangement
2) Refining crude on a beach in Northland is not economic or efficient
3) Profits are plowed back into expensive plant upgrades that destroy capital

Are all these things correct? Well....... yes but then on the flip side it is damn cheap and:

1) Despite all these issues the company has returned significant dividends over the years

Dividend Amount
2019 Interim dividend 2 cents per share
2018 Final dividend 4.5 cents per share
2018 Interim dividend 3 cents per share
2017 Final dividend 12 cents per share
2017 Interim dividend 6 cents per share
2016 Final dividend 6 cents per share
2016 Interim dividend 3 cents per share
2015 Final dividend 20 cents per share
2015 Interim dividend 5 cents per share


2) While manufacturing is hard, dangerous, dirty and expensive and the major customer shareholders get a sweet heart deal, NZR can still make significant free cashflow. I believe that if we can just keep the company processing for the next few years then see no reason why we cant be expected to return to a period like 2015-2019.

3) Yes when you do something hard, that needs skilled fabricators, engineers, operators and tangible assets then you have to plow significant earnings back into plant and people. I don't mind this as long as they also return dividends which they have been pretty good at over the years.

On a separate side note that I shouldn't really bring up, I think it is more important than ever that NZ is self sufficient in some critical things. Over the years NZ govt officials have thrown plenty of cash down the drain at Marsden point primarily because they used to view refining and manufacturing in general as a strategic asset. NZ needs all the high value jobs it can get and internal security of making our own things.


My summary is that refining is costly, hard and complicated but recent history suggests that NZR has the ability to reward shareholders. Covid is making heaps of uncertainties but I am figuring Mr Market may have overreacted in the case of NZR and that if they can just keep refining for the next few years and things go back to near normal then the price is so cheap that there is little downside.

[SailorRob]

‘Someone has to do some research on this company rather than let generalisations fly’. This implies that nobody has done the research.

For me research means;

Working for the company for 18 years and having met and spoken to every GM over that period and a few board members as well as the leadership team, listening to conference calls and spending time with guys that have followed and invested in this company since I was in primary school. Also having the opportunity to ask hard questions of the GM's and top management at very regular intervals on any topic. I've never been party to any inside information at any time I might add.

Reading and understanding the book 'The Point at Issue' A deep look at NZ petroleum energy politics from 1955 to 1990. Having read and understood every annual report, interim report, presentation, and throughput report over that entire period and having re read the financial statements for the past 13 years very recently.


Having seen the singapore complex margin each week and generally understanding cracked spreads as well as getting daily reports of what it costs to land a wide range of products at Marsden Point from Asia (for example currently the cost of landing a metric ton of Diesel is $399.25 USD). Most importantly having a close approximation of what it costs NZR to make that same metric ton which includes understanding a lot of moving balls including crude and product rate differentials.


Having a detailed understanding of CAPEX and the cost of shutdowns.

Having been through the cash flows for the last 13 years and compiling all that data into one place which examines each dollar in and out over that entire period (this is by far the most important piece of research).

Having a good idea of the global refining scene in general.

This is but a small fraction of the research but hopefully you'll see that someone has at least done some research.


The flip side of it being damn cheap is simply not true, it’s not cheap at all, let alone damn cheap. If it was, I would own it and insiders would be buying too, it’s only worth the present value of what it can generate in the future in cash flow for its owners - which if the last 13 years is anything to go by will be nothing at all.


The entire point of the current review is because it has generated no return on invested capital over the full cycle, let alone returning its cost of equity. It wasn’t cheap when the last GM told me to buy at $2.17 because it was ‘incredibly cheap at an EV/EBITDA of 3.7’ and it’s not cheap now. When it was over $2 I was desperately trying to borrow shares to sell short and I’m pretty sure I asked Waikaka to lend me shares.



Sometimes free ain’t cheap. As investors we must think as business owners and conduct our transactions as such. If NZR was offered to us for free, the answer would of course be ‘no thanks’ and therefore the answer is the same if it’s offered at $0.54c a share, this is the point that people are missing.


‘Despite all these issues the company has returned significant dividends over the years’


No it hasn’t returned any dividends over the years, this is a total illusion. The capital, YOUR capital which it has destroyed is FAR more that any dividends it has paid out. Just look at the share price and you will see that! You need to look and see where the dividends have come from. If you were a bond holder then ok, but as an equity holder you own the pot which the dividends are getting paid out of so it’s more important to look at the pot as a whole.


So from financial year 2009, the surplus cash leftover after CAPEX totals 88 million, they have however paid out a net 303 million over that time (after adding back for the equity raise they did) so where has this cash come from? Take a look at what has happened to the NET debt over that time. The only way this company has posted any ‘profit’ at all is because of depreciation accounting. It’s not real profit at all. I've posted all this in detail before.

'Refining NZ can still make significant free cash flow'.


No it can't, it has never been able to over the last 15 years, just a super quick look through the cash flow statements will tell you that. Any free cash it generates in good years is more than taken back in bad ones. So if you want to run it for the next few years in order to position for a good period which may or may not come, who’s paying for until then? Keen to chip in for a large equity raising, or will someone lend us the cash? How do you propose to pay for the large 2022 shutdown, let alone next years?

'I think it is more important than ever that NZ is self sufficient in some critical things'.


I totally agree with you, but then taxpayers have to be happy to cough up for this strategic asset.

On the high value jobs though, how can they be high value jobs if they create no value, no cash flow, no profit? They are nothing of the sort.

In summary, if you were given all the assets for free with zero debt and the ability to re negotiate contracts in a free and fair way, then you would have been given a suicide pass and you could never make it work as a Refinery and you would be really under the pump to get the Terminal up and going generating enough cash to pay for the demolition of the refinery, so in that case $0.00 is not cheap, so how can $0.54c a share or $170 million be cheap.

A rusting pile of crap on a pristine Northland beach is a liability not an asset, the Jetty, tank farm and pipeline are world class assets but if you can figure out the CAPEX to run them, the income they will generate and the real cost of scrapping the rest and how and when all this will happen... Then please share! I'm not saying the shares can't pop to a buck in a heartbeat but that's just gambling.

How about we move to the STU thread, a REAL deep value opportunity, which is actually cheap not just an illusion. No point in flogging a dead horse that is RNZ.

[bull....]

going off Z commentary today they will only accept nzr as an import terminal
suggesting they do not like paying fees to nzr any longer than necessary
there future should be in support of z strategy as a terminal operator lol , so if z going this way and already has good infrastructure in place growth for nzr would be limited to upper north only as a terminal operator?

[SailorRob]

Yes that's my understanding too Bull. Terminal for Auckland and Northland, at least to begin with. Need capital to do anymore than that and it will be against stiff competition.

None of them like paying fees which is why this cash neutral business is rubbish as you at least understand!

[Sharp737]

Nice to see the debt coming down. Every bit counts

[SailorRob]

Nice to see the debt coming down. Every bit counts


Unfortunately the debt is not coming down at all as you will clearly see next time a balance sheet is released.

They are just holding that cash for expenses related to the conversion. Not a cent of debt has been paid down.

If anyone thinks that the company can make money from 'savings realised from the six-week temporary refinery shutdown in July/August' Then I would suggest a much longer shutdown then they will really be pumping the cash.

No possibility of doing the shutdown early 2022 unless margins went through the roof.

[Waikaka]

Just love the passion SailorRob.

Ill be honest looks like you know the company inside and out more than I ever will. I cant even get annual reports back past 10 years so wont match your due diligence there.

And again a lot of your points are valid, things don't end up in the gutter as NZR has without facing some serious structural issues.

All I would say is what the company is now. Can it generate free cashflow, yes, has Covid19 blown up their world making a bad situation worse.... yes.

Might there be a puff or 2 left in this filthy cigar butt, I reckon.

I also like STU well enough, I am up 25% on my holdings, but NZR still has a small spot in my portfolio of unloved companies.

[Waikaka]

Not a huge fan of subsidies but interesting the Aussie govt is proposing a 1.15c per litre bonus payment for locally processed fuel. Trying to keep their last old refineries alive for energy security reasons.

At Marsden's reduced 90,000bbls a day that would be maybe ~$6 million a year. However no hope of that with the current bunch in charge though.

[Getty]

Great posts Sailor Rob.
Thankyou for the effort & time put in to share wise insight.

Like many Kiwi's, I used to take pride in seeing things such as NZR enabling NZ's 'independence', but it took a dose of Rogernomics to expose such things as being economic illusions and disasters.

Like many, I also have profited by trading NZR, up until the last one, where I lost.
The tide was going out, but your analysis shows it was never really in to start with.

[SailorRob]

Thanks Waikaka and Getty, appreciate the feedback.

I've been harsh on the NZR bulls that's for sure but just calling what I see. I still work there, so for me this has all be too real watching a slow moving train wreck over the years.

From here any free cash flow would just go to the terminal project and reducing debt (both could reward shareholders yes) but man to generate any would be a miracle, the capital that has to be put back into the business is just phenomenal and we're falling further and further behind in maintenance which would have to be caught up on. Any free cash flow would just be in a non shutdown year and then get spent as soon as the next shutdown came along, so just an illusion .

Getty - The tide was going out, but your analysis shows it was never really in to start with. That pretty much nails it. I will say though that it didn't need to be a disaster or economic illusion, had the business been run properly over the last 10 years we would survive this no problems. That said it would still be a very tough business.

I think this piece on capital allocation sums up the issues I have seen play out with my own eyes - very useful insight.

The management of every company has two basic roles: to run the company and to allocate the capital that it earns. The first task is obvious, but the second one is frequently overlooked by both investors and managements. Managements generally tend to be better at managing companies than allocating capital. These are two completely distinct functions and require different skill sets. A large part of top corporate managers reached their lofty positions by working their way up from lower positions or by specialising in specific fields. Therefore, these people tend to be experts in the fields within which the company does business rather than in capital allocation. It is very typical, therefore, to see managements that run companies well but allocate capital poorly.

The Jetty and Pipeline are incredible assets but there are just so many moving balls here it's dizzying. IMHO impossible to predict how it will all work out. As I have said the share price could be back over $1 or higher in a heartbeat but that's just outright speculation.

Waikaka as I've said I love my cigar butts as much as you do but I just don't think this is one. The coiners of the phrase wouldn't touch it. If you want a real cigar butt again check out ARLP, up 85% since I posted about it in October and still cheaper than cheap. They did a quarter of their market cap in free cash flow in the last 3 Months. Never had a negative cashflow in their history.

Looking like will go to shareholder vote around March for the Terminal and Front End Engineering Design underway now. Apparently all the stakeholders are miles apart in negotiations.

[bull....]

pretty hard case z and the other major oil companies are not happy about paying floor fees for long , they dont mind the opposite end though of taking the extra margin above the processing fee top limit though llol that dude who protested against the processing agreement for years at the agm's might had some merit after all eh

[SailorRob]

pretty hard case z and the other major oil companies are not happy about paying floor fees for long , they dont mind the opposite end though of taking the extra margin above the processing fee top limit though llol that dude who protested against the processing agreement for years at the agm's might had some merit after all eh

Bryan Halliwell. Legendary dude.

[SailorRob]

NZR bulls been awfully quiet... What's going on?

[Waikaka]

Probably just me on the bull side.

I gave into my weakness for horrible stocks and had a modest top up around mid Jan.

MRKT cap is down to $142 million, $230 million in debt which at least hasn't got worse, significant assets is what keeps tempting me, even though at this point it is a one way relationship. I am down 55.6% since my first pre-covid purchase.

My most hopeful case is that they keep the refinery trucking long enough for the margins to improve so they can get a few more puffs of this gutter butt and then eventually decommission at the next large capex/opex spend.

Seems like they are foreshadowing that in Feb they will announce the change to an import terminal but happy to ride it through.

In November/December they brought in NZ$ 24.6 million in processing revenue but ~14% of that was fee floor top ups so not that surprising the oil company shareholders are not happy.

[bull....]

need to consider the assets will need to be severely impaired if they go to an import terminal

[SailorRob]

Probably just me on the bull side.

I gave into my weakness for horrible stocks and had a modest top up around mid Jan.

MRKT cap is down to $142 million, $230 million in debt which at least hasn't got worse, significant assets is what keeps tempting me, even though at this point it is a one way relationship. I am down 55.6% since my first pre-covid purchase.

My most hopeful case is that they keep the refinery trucking long enough for the margins to improve so they can get a few more puffs of this gutter butt and then eventually decommission at the next large capex/opex spend.

Seems like they are foreshadowing that in Feb they will announce the change to an import terminal but happy to ride it through.

In November/December they brought in NZ$ 24.6 million in processing revenue but ~14% of that was fee floor top ups so not that surprising the oil company shareholders are not happy.

Great to provide brutal honesty Waikaka.

Not convinced on hope being a good investment case however. Extremely unlikely they will invest money into the big 2022 shutdown so that's the line in the sand for me.

Too many moving balls - jetty and pipe great assets but nobody knows what the future contract will look like.

Hopefully you had a look at some of the 'gutter stocks' I pointed out last year on this thread. ARLP in October up around 140% and still one of cheapest companies in the world. Free cash flow of 280 million 2020 against a current market cap of 800. And STU which I've been beating the drum hard on since it was in the 50's.

I'd still consider borrowing your NZR shares off you at 5%.

[Waikaka]

No point being shy about the hits. Too many people talk a good game about buying at all time lows once the rebound has happened but never state positions as they buy them.

Regarding NZR I have long boring timeframes so happy to hold through the changes.

My stink list as of today:
ZEL = -8.6%
SAN = -17.8%
SML = -19.72%
NZR = -52.7%

and my gutter rats made good:
MPG = 94.4%
STU = 76.8%
SUM = 66.6%
FBU = 60%
MEL = 50%
TPW = 38.5%
TWR = 21.2%
KPG = 18%

And a whole bunch in the middle.

[SailorRob]

Yep but without holding periods you can't gauge your performance.

It's really what your entire portfolio including cash is doing each year over a 10 year period vs 'the market' really and I'd imagine very few investors actually know what their performance really is and would be better buying a index fund.

Some nice returns there though.

[Waikaka]

Yep but without holding periods you can't gauge your performance.

It's really what your entire portfolio including cash is doing each year over a 10 year period vs 'the market' really and I'd imagine very few investors actually know what their performance really is and would be better buying a index fund.

Some nice returns there though.

Numbers above were from the last financial year, ie since April 2020.

Only really invested properly in shares since 2013 so don't have 10 years but for what it is worth I returned an average of 11.3% a year during that time. So slightly better than the NZX50 i suppose but plenty of hard lessons like NZR as well which is always valuable.

I have learnt more about the upstream sector than I ever wanted to.

[SailorRob]

Numbers above were from the last financial year, ie since April 2020.

Only really invested properly in shares since 2013 so don't have 10 years but for what it is worth I returned an average of 11.3% a year during that time. So slightly better than the NZX50 i suppose but plenty of hard lessons like NZR as well which is always valuable.

I have learnt more about the upstream sector than I ever wanted to.

That's bloody good going Waikaka. As the NZ50 has produced bugger all apart from expanding multiples. When the weighing machine fires back up you could see some serious outperformance.

[sartis888]

Thanks SailorRob for your informed analysis in Oct 2020.

What are your thoughts on the new CEO and current management?

[macduffy]

Seems fashionable to close refineries these days.

https://www.abc.net.au/news/2021-02-11/australia-loses-another-oil-refinery-risking-fuel-supply/13139648

[SailorRob]

Thanks SailorRob for your informed analysis in Oct 2020.

What are your thoughts on the new CEO and current management?


No problem thanks for the acknowledgment.

The new CEO is trained as a lawyer and used to run midstream assets for Santos, so that says it all really. She has been brought in to sort the terminal conversion. From what I can see they are trying to look after the best interests of the company and non oil major shareholders, they are not being bullied by the customers. She seems OK I guess. Like many CEO's doesn't seem to know a lot about the financial side - told me the company could borrow money at 1%, so I wonder why we did the bond issue at what was it 5.25%?

The last CEO was a right imbecile, now the CEO at Contact. He told us all to buy shares at $2.15 and told us to get family and friends to as well, when I challenged him he told me that the company was dirt cheap on a EV/EBITDA basis - don't think he understood what that means for a company that spends 100 million a year on CAPEX to tread water.

The other new appointments are obviously all terminal related, our own fancy pants lawyer, a spin doctor, a HR magician, not to mention Frank Boys who is head of looking into the terminal conversion - he was king pin of the Kurnell conversion and would not have come cheap, so I assume they are all good appointments if you're looking at shutting down a Refinery and converting to a terminal.

The rest of the management who are original, well do I need to say more - look at the state the company is in, which was on their watch over many many years.

I think a friend of mine summed it up the best with a facetious quote 'No decisions have been made about the terminal however we've hired anyone and everyone who has got the skills to get one of these over the line'

[dibble]

... terminal related, our own fancy pants lawyer, a spin doctor, a HR magician, not to mention Frank Boys who is head of looking into the terminal conversion
[/I]

"terminal", har har, quite funny given the context. Wonder if Z is doing a terminal analysis too.
Good feedback BTW, thanks.

[sartis888]

Very interesting comments on management, SailorRob.

It seems to be a done deal to convert to an import terminal. It also looks like they have a reasonable team to manage the conversion.

If the conversion is done efficiently, do you think value can be extracted from their valuable jetty and pipeline assets? Although it seems bleak at the moment, there is a high probability that covid vaccines will influence the world positively (can’t get much lower than rock bottom). Airline travel will eventually pick up. So potential upside for NBR?

[SailorRob]

Very interesting comments on management, SailorRob.

It seems to be a done deal to convert to an import terminal. It also looks like they have a reasonable team to manage the conversion.

If the conversion is done efficiently, do you think value can be extracted from their valuable jetty and pipeline assets? Although it seems bleak at the moment, there is a high probability that covid vaccines will influence the world positively (can’t get much lower than rock bottom). Airline travel will eventually pick up. So potential upside for NBR?

Yes it's possible but no way to predict it with current information. Too many moving balls.

Announcement tomorrow will likely say that agreement has been made in principal to convert, and a cost estimate and staffing estimate for the terminal.

There are just so many better investment opportunities out there right now that there is no reason to be speculating on potential upside to NZR, there is still a lot of debt and a huge mess of a refinery to demolish and clean up - the liability for that could go out decades.

NZR as I have said before has the potential to double in a week, but you can double in 30 seconds on a roulette wheel...

[Waikaka]

Quick read through of the presentation and looks like I am going to be the proud co-owner of a import terminal in a few years. Thanks for the bang on foreshadowing Sailor Rob.

Conversion costs of $200 million, decommissioning of $60 million.

Seems like the footprint of an import terminal is a lot smaller than a refinery so frees up quite a lot of tank storage and land.

So many moving parts but ill keep on holding through.

I wonder who will pay for the unneeded extra storage on site, MBIE say it is pretty critical to domestic oil security.

https://www.mbie.govt.nz/assets/c3a1dee1b0/petroleum-supply-security-september-2017.pdf

[SailorRob]

Quick read through of the presentation and looks like I am going to be the proud co-owner of a import terminal in a few years. Thanks for the bang on foreshadowing Sailor Rob.

Conversion costs of $200 million, decommissioning of $60 million.

Seems like the footprint of an import terminal is a lot smaller than a refinery so frees up quite a lot of tank storage and land.

So many moving parts but ill keep on holding through.

I wonder who will pay for the unneeded extra storage on site, MBIE say it is pretty critical to domestic oil security.

https://www.mbie.govt.nz/assets/c3a1dee1b0/petroleum-supply-security-september-2017.pdf

It wont be in a few years, it will be next year. No way they have the money to spend on the massive shutdown next year and carry out the conversion. The caveat to that is a huge uplift in margins before then....

If, and it's a big if... the numbers they spat out were realistic then the current market cap is justified and I expected it to jump around 10% this morning at least.

[Sharp737]

Yes SailorRob, I actually agree with some of your points. You say 'if' and it's a big 'if' and this is what I am expecting and have been expecting.
If you have a look at RNZ's margin graph on neste.com you will notice a trend in the margins and of course it has been shocking BUT have a look at the trend! Its going up

I am still optimistic and I like the idea of new idea's being brought forth like the solar project, hydrogen and biofuels. Yes, long shots but NZR have got to have the guts to go for it.
Now I heard that James Shaw popped in for a visit some weeks ago on his way up north. That's the opportunity to lobby like mad and for someone who has the 'nouse' to go after him.
I did hear that Naomi did have a good talk with him but this has got to be sustained and some real research and ideas presented. This I believe is the way forward and then....

We still need oil and gas and look at the mess Biden has made just in his first few months on USA's energy policy, the Canadian pipeline being stopped (how stupid just to please the left) and banning oil and gas work on federal land etc losing now over 100,000 jobs with millions more on the horizon and Texas in a huge mess with the cold spell that has spelt disaster with there reliance on renewable energy with wind turbines freezing up and solar panels useless in this type of weather. We cannot rely on renewables, just a joke. Oh wait, we can have all our electric cars and our Huntley coal station will supply the extra energy....Lol, what a joke

There is still I believe good potential with NZR

GO you good thing, you beauty!

S

[Antipodean]

... and Texas in a huge mess with the cold spell that has spelt disaster with there reliance on renewable energy with wind turbines freezing up and solar panels useless in this type of weather. We cannot rely on renewables, just a joke. Oh wait, we can have all our electric cars and our Huntley coal station will supply the extra energy....Lol, what a joke


Texas mostly relies on non-renewable energy, and even more proportionally than that it is the non-renewables have failed during the recent events. Oil, Gas and Nuclear power failures/reductions are the proximate cause, when combined with an isolated grid that cannot share load cross state lines.

[SailorRob]

Yes SailorRob, I actually agree with some of your points. You say 'if' and it's a big 'if' and this is what I am expecting and have been expecting.
If you have a look at RNZ's margin graph on neste.com you will notice a trend in the margins and of course it has been shocking BUT have a look at the trend! Its going up

I am still optimistic and I like the idea of new idea's being brought forth like the solar project, hydrogen and biofuels. Yes, long shots but NZR have got to have the guts to go for it.
Now I heard that James Shaw popped in for a visit some weeks ago on his way up north. That's the opportunity to lobby like mad and for someone who has the 'nouse' to go after him.
I did hear that Naomi did have a good talk with him but this has got to be sustained and some real research and ideas presented. This I believe is the way forward and then....

We still need oil and gas and look at the mess Biden has made just in his first few months on USA's energy policy, the Canadian pipeline being stopped (how stupid just to please the left) and banning oil and gas work on federal land etc losing now over 100,000 jobs with millions more on the horizon and Texas in a huge mess with the cold spell that has spelt disaster with there reliance on renewable energy with wind turbines freezing up and solar panels useless in this type of weather. We cannot rely on renewables, just a joke. Oh wait, we can have all our electric cars and our Huntley coal station will supply the extra energy....Lol, what a joke

There is still I believe good potential with NZR

GO you good thing, you beauty!

S

A company with such great potential on a massive sale, you must be buying shares hand over fist at these give away prices.

[Sharp737]

It might go down a bit further SailorRob even into the 30's and that might be tempting to really jump in Lol.
And I see for the first time in some 8 months that refining margins took a big jump into the positive....nearly $2.30. Now if that holds and increases, we are in the money Honey!
Is it time to BACK UP THE TRUCK??
Some people think so
Either way whether RNZ go down the Terminal road or whatever, when the margins go up, and they are, they can make BIG BUCKS $$$$$
Time will tell and word is that the current shutdown is going very well

Check out the refining margins trend:

https://www.neste.com/investors/market-data/refining-margins

It's going up

S

[SailorRob]

It might go down a bit further SailorRob even into the 30's and that might be tempting to really jump in Lol.
And I see for the first time in some 8 months that refining margins took a big jump into the positive....nearly $2.30. Now if that holds and increases, we are in the money Honey!
Is it time to BACK UP THE TRUCK??
Some people think so
Either way whether RNZ go down the Terminal road or whatever, when the margins go up, and they are, they can make BIG BUCKS $$$$$
Time will tell and word is that the current shutdown is going very well

Check out the refining margins trend:

https://www.neste.com/investors/market-data/refining-margins

It's going up

S


I do enjoy this.

What to deal with first. Let's begin with the Shutdown. A full 3 days behind by the 4th day and best estimates currently will be lucky to make the P80% which if they do means many days behind. Massively reduced work scope to allow limping along until the end, inspections granting the bare minimum run time from damaged equipment, main tower lift broken as well as the 100k replacement one, total operating time for both combined about 1 day, which means massive productivity losses and huge extra costs for the specialist crews. Things can always be worse but they are definitely not going very well. Budget will have blown out for sure too, after all when has it not?

Multiple resignations of key staff, currently having to try recruit Process Engineering staff and specialist control room, process control as well as many other critical positions, also many critical staff being needed immediately on the Terminal project. Many more resignations coming soon, this much is obvious to all but management.

No matter what margins do we are not in the money... remember when we start back up, it's with a much reduced simplified Refinery, far lower production and efficiency - just meant to satisfy legal contractual requirements while we transition to the Terminal. That aside, the entire point of the Terminal is that we cannot make ANY money over the full cycle. The good periods don't even cover the bad ones. Any free cash we generate will just be going to the conversion. The CAPEX maintenance is falling behind so far that it would be virtually impossible to catch up and the CAPEX on the quickly aging '86 expansion plant is accelerating all the time.

There is no whether RNZ go down the Terminal road. We are becoming a Terminal, that is set in stone, no recovery in margins will change that. It will be faster than anyone realises.

Don't ever invest money into a company that insiders, management or board have had zero stake in for over 20 years (aside from a few token shares). It's not rocket science.

Even at a share price of 1 cent you don't buy, after all what's the difference between 137 mil and zero? You're just buying the debt and the obligations. No thanks, you literally could not give this dog away. Maybe all the spinning balls land ok and you make money buying here. Maybe not. That's not investing.

I'm not predicting the shares up or down from here, always said they could double very quickly based on some stupid news or other, Mr Market is alive and well. I'm just saying that is not investing, it's speculating on what none of have enough information to speculate on.

You'd think everyone could see the margin trend rising and bid the shares but they obviously can't.

Look if it's not crystal clear that these assets as they are cannot generate ANY money at all then I don't know what else I can do. The cash flow statements are there for all to see going back 15 years at least. The rest is just addition and subtraction.

It can seem like the cash is pouring in from time to time but a closer look will tell you that is an illusion. Maybe you're smart enough to trade the stock up and down as the outlook appears to improve and decline but I think that would be very difficult.

[Sharp737]

SailorRob, I am amazed that you still work at the Refinery with how you feel. Surely with your views you must have thought of jumping ship also? For me to work for a company, loyalty to that company is important but if you feel that you cannot be loyal, well that's another matter. But of course, that is each person's business.

Thanks for your comments, they are interesting and challenging. But for about 8 months RNZ have been operating at the bottom ceiling payout and a cash neutral position and now suddenly the margins start surging upwards.
Whatever happens, that is extra money albeit at reduced throughput but still significant and is extra money that RNZ were not going to get. Substantially extra when you compare it to the floor ceiling.

It will be very interesting to see what happens over the next year

S

[SailorRob]

SailorRob, I am amazed that you still work at the Refinery with how you feel. Surely with your views you must have thought of jumping ship also? For me to work for a company, loyalty to that company is important but if you feel that you cannot be loyal, well that's another matter. But of course, that is each person's business.

Thanks for your comments, they are interesting and challenging. But for about 8 months RNZ have been operating at the bottom ceiling payout and a cash neutral position and now suddenly the margins start surging upwards.
Whatever happens, that is extra money albeit at reduced throughput but still significant and is extra money that RNZ were not going to get. Substantially extra when you compare it to the floor ceiling.

It will be very interesting to see what happens over the next year

S

I just report facts I wouldn't call them my views.

My loyalty to the company is absolute and always has been. I am not however loyal to the long string of management who have destroyed a Northland institution, many shareholders life savings and probably the Northland economy and will get away with it with zero consequences. I would say that most of the workers are the same, absolutely love the company but saddened immensely at its demise. Jumping ship would just put more pressure on those remaining and I'm picking significant resource will go to retaining key staff until the final Shutdown, probably unsuccessfully.

As for Cash neutral operations, nothing could be further from the truth. I've been over this before. Firstly we have only been 'cash neutral' by selling land and cutting back maintenance so far that the future costs would be far higher then the cash we've saved by cutting back, this is also only possible in a non shutdown year. If you stop eating you can reduce your grocery bill for some period of time... They have also run long periods shut down completely or idling to save costs by not actually producing while the customers are still forced to pay the floor, this has resulted in all 3 customers lodging disputes, which have only been paused while the Terminal deal is worked out and of course the disputes will provide leverage. So Cash neutral is a complete joke on many different levels and completely unsustainable.

Margins are surging upwards? For the first time in over a year possibly much longer the Singapore complex margin has been positive for ONE WEEK. Personally I would not call this surging upwards, the excess refining capacity in Asia is phenomenal and any increase in margins will bring on capacity. Now I have no ability to predict future margins and maybe they will rise? Maybe they won't. If the company had any ability to predict future margins then all is saved, we shut down the plant and just become a cracked spreads trading company, just need a few PC's and handful of staff and then We're in the money baby.

As you say if margins do improve this is extra money that they didn't have before and will go towards the Terminal conversion but the company will absolutely not want higher margins as that could put an spanner in the works of the plan that is set in stone, could but won't.

It's not going to be interesting to see what happens over the next year as we know whats going to happen. It's set in stone. It will however be interesting to watch and it's going to be a slow moving train wreck which does look like it's turning into a medium paced train wreck actually.

Nobody at all is talking about ongoing Refinery operations and very significant staffing and cash flow is going into the Terminal conversion effective immediately after the shutdown. One agreement has been made and the others will be signed before the end of the Month (my view not fact). Announcement made soon after and then the shareholder approval process pushed through very quickly and basically they will have no choice, death by a thousand cuts or give the terminal a go. As discussed previously way too many moving balls to determine whether it will be acceptable investment at current levels.

Again NEVER EVER invest your money where management and the board do not have and never have had ANY of theirs. Number one rule.

[SailorRob]

Now I must add when I criticise management, I'm not talking about current management who are doing a fine job of what they have been hired to do. Terminal as quickly as possible with as little fuss as possible. I'm talking more about the Directors and CEO'S over the years and not all of them but almost all. With a situation like this the CFO cannot dodge blame either but you never know how much they were or were not pushing back behind the scenes.

[Getty]

Your last sentence in particular, is sufficiently sensitive, to further validate your earlier posts.

[bull....]

as waikaka was saying 200 -250 m conversion costs.
assuming that will add to there already huge debt profile in this current environment. So i see most of there future earnings going to service debt unless they sell of a big part of there land portfolio to repay debt. under this senario nta will plunge as they sell assets and write off the refinery costs and conversion. there have 350m of tax losses to carry forward. import terminal costs they say are 35 - 40 m per year. we dont know there income from being an import terminal yet but im sure it be designed to favour the oil majors.
there save money on staff costs as an example kwinana is being converted to an import terminal they currently have up to 650 staff they will only need 60 people on conversion and a few more why they transition so heaps of redundancy costs at refining nz as part of the conversion costs probably modelled into the 200 - 250 m .
as sailor rob says its not a pretty picture and will most likely keep on being what the past has been a erratic stock performer with no reliable income.
as an import terminal operator most contracts a flexible fee paying arrangement similar to the fee floor arrangement now so they adjust the fee payable to the import terminal operator based on conditions

[winner69]

NZR not one I follow but hadn’t realised that the share price had fallen all way 40 cents odd.

[Scrunch]

as waikaka was saying 200 -250 m conversion costs.
assuming that will add to there already huge debt profile in this current environment. So i see most of there future earnings going to service debt unless they sell of a big part of there land portfolio to repay debt. under this senario nta will plunge as they sell assets and write off the refinery costs and conversion. there have 350m of tax losses to carry forward. import terminal costs they say are 35 - 40 m per year. we dont know there income from being an import terminal yet but im sure it be designed to favour the oil majors.
there save money on staff costs as an example kwinana is being converted to an import terminal they currently have up to 650 staff they will only need 60 people on conversion and a few more why they transition so heaps of redundancy costs at refining nz as part of the conversion costs probably modelled into the 200 - 250 m .
as sailor rob says its not a pretty picture and will most likely keep on being what the past has been a erratic stock performer with no reliable income.
as an import terminal operator most contracts a flexible fee paying arrangement similar to the fee floor arrangement now so they adjust the fee payable to the import terminal operator based on conditions
I wouldn't expect much money to come in from land sales. The 2019 AR has freehold land and improvements having a book value of $27m. There's clearly a bunch of "improvements" within this total as there is $55m of accumulated depreciation. The actual land area owned isn't stated but must be available info.

Marsden Maritime's web page notes it has over 150ha of prime bare land, which is geographically nearby. Their land valuation (excluding land assets within the port JV) but including non-bare land is $20m. Land values in that part of the country aren't like Auckland where a ha of land is in the multi-million dollar price range.

[SailorRob]

I wouldn't expect much money to come in from land sales. The 2019 AR has freehold land and improvements having a book value of $27m. There's clearly a bunch of "improvements" within this total as there is $55m of accumulated depreciation. The actual land area owned isn't stated but must be available info.

Marsden Maritime's web page notes it has over 150ha of prime bare land, which is geographically nearby. Their land valuation (excluding land assets within the port JV) but including non-bare land is $20m. Land values in that part of the country aren't like Auckland where a ha of land is in the multi-million dollar price range.

Well said, exactly right.

And the 'improvements' to the land are exactly whatever the opposite of improvements are, impairments perhaps? A massive rusting pile of tangled steel and concrete with hydrocarbon soaked sand underneath which the decontamination of could take decades and hundreds of millions of $$.

[Maxtrade]

Well said, exactly right.

And the 'improvements' to the land are exactly whatever the opposite of improvements are, impairments perhaps? A massive rusting pile of tangled steel and concrete with hydrocarbon soaked sand underneath which the decontamination of could take decades and hundreds of millions of $$.

Plenty of investors seem to think this is all good news. Share price has already jumped up 40% off recent lows. Thats pretty substantial if there is no real substance behind this in a positive way for future profitability.

[SailorRob]

Plenty of investors seem to think this is all good news. Share price has already jumped up 40% off recent lows. Thats pretty substantial if there is no real substance behind this in a positive way for future profitability.

There is a lot of stuff out there with a lot of companies that investors seem to think is all good news. I wouldn't base any investment decisions around what other investors think or short term price volatility of micro cap companies.

Could bounce hard from here back to $1 or beyond, or find new lows. Just like a roulette ball.

Possible that someone knows something, but negotiations still ongoing, costs starting to blow out on the early stage of the terminal development and no real idea of what the costs will be. Definitely no real substance.

So we don't know the revenue, the timing, the running costs... Nothing.

17 Operational staff made redundant only weeks ago, now they're desperately trying to hire 9 back. Just a shambles.

I would say that recent price move would be entirely due to recovering margins. But who knows.

[Maxtrade]

There is a lot of stuff out there with a lot of companies that investors seem to think is all good news. I wouldn't base any investment decisions around what other investors think or short term price volatility of micro cap companies.

Could bounce hard from here back to $1 or beyond, or find new lows. Just like a roulette ball.

Possible that someone knows something, but negotiations still ongoing, costs starting to blow out on the early stage of the terminal development and no real idea of what the costs will be. Definitely no real substance.

So we don't know the revenue, the timing, the running costs... Nothing.

17 Operational staff made redundant only weeks ago, now they're desperately trying to hire 9 back. Just a shambles.

I would say that recent price move would be entirely due to recovering margins. But who knows.

Makes sense. Thank you. I guess many traders like to hope for the best, off such low lows any slightly positive outlook they are 'hoping' it has found a bottom and will bounce. I personally lost. a lot of money on NZR. The only stock in my portfolio that I have not done well with. So I am hesitant to buy back in when the fundamentals of the company are not a sound bet. Like you say, a roulette spin, not an educated smart investment. Still hard to sit on the sideline and see the share price moving up when I could be recovering sone losses if I bought back in.

[SailorRob]

Makes sense. Thank you. I guess many traders like to hope for the best, off such low lows any slightly positive outlook they are 'hoping' it has found a bottom and will bounce. I personally lost. a lot of money on NZR. The only stock in my portfolio that I have not done well with. So I am hesitant to buy back in when the fundamentals of the company are not a sound bet. Like you say, a roulette spin, not an educated smart investment. Still hard to sit on the sideline and see the share price moving up when I could be recovering sone losses if I bought back in.

Sorry to hear that but glad your other companies have done well. You can't win them all, even the best of the best don't.

I've posted a lot of material on this thread and have been calling it down from just under $3 - it's just a gong show all around. Just look at the cash flow statements over the last decade and the story will tell itself. Biggest thing is to be bloody careful putting your money where no management or directors have theirs.

Yes you could be recovering some losses or you could enjoy another ride down with fresh capital. Best thing it to totally forget the past and allocate your money into the best of the 20,000 plus options in the global equity markets, and RNZ is simply not one of them. As I've always said though, it could rip back to over a buck but who knows.

I've recommended a few things to the beaten down RNZ bulls to try and help them recoup some losses such as blue chip oil and gas last year when they were crushed, Steel and Tube which was my favorite NZ pick when under 70c, ARLP at $2.70 etc but most of the really attractive stuff has ripped very hard and taken away the margin of safety.

Still some pretty good opportunity in the oil/gas space specially with a 3-5 year time horizon.

Take a look at Babcock, classic deep value (London stock exchange) Nothing much attractive in NZ IMO. Markel very safe money with a long term outlook, Progressive and Allstate as well. Those as a portfolio worth a look. Berkshire still a buy here but has run pretty hard, pulls back under 250 would be good.

[Waikaka]

Ahh, NZR my perennial pet loser.

Do I like a business that is super cyclical, debt ridden, needs huge capital expenditure, is a commodity producer with super uncertain future margins. Not really. But I do like it at the bottom of the cycle.

Market cap got down to ~$130 million
Debt is 238 million

Not too worried about decommissioning cost as turning it into a import terminal means that can just sit as a big rusty, expensive contaminated paper weight.

Regarding NZR land, pipeline and port facilities being worth peanuts, imagine trying to rebuild the port, pipeline tanks and how much that would cost. I don't even think it would be possible to rebuild those assets under the current RMA environment. No other feasibly way to get oil into Auckland other than RAP so it has a unreal moat. So NZR has a 'hidden' infrastructure business storing and supplying imported oil for the upper North Island (40% of all NZ demand)

In the 2020 annual report they give a hint with estimated fee income of a tolling facility being $100 million a year. I don't have a feel for operational costs to run the system but suspect it is well less than $100 million. Lets say $50 million to run, conservative price to earnings of 15 (feels cheap for what is essentially a utility/infrastructure business) that means what 750 million for the whole enterprise? At its lowest debt and market cap combined was $368 million.

Things I am worried about and add significant uncertainty:
1) Terminal conversion is a big uncertainty but we will wait and see on that one.
2) Setting tolling fees for the new terminal, I worry that NZR is too influenced by the customer shareholders even though they are less than 50% of shareholders now. Hopefully as Naomi James is from SANTOS rather than appointed from one of the shareholder customers some hard nosed bargaining will be done. Particularly around third party usage of the pipeline, badly negotiated 10 year contracts would be a significant burden if they mess up now.
3) Govt regulations. Labour seems to be flexing on a whole range of industries, particularly unpopular ones. Hopefully they don't whack NZR with a big stick to win some short term political support.

Things that would be awesome:
1) Improving margins that means the plant can generate revenue for a few more years to pay down debt before shelving the plant before its next big expense.
2) The far out there hope that the Govt decides, like Australia is talking about, that having the capability to refine oil is strategic in a national security sense and put a petrol surcharge on to make it happen or even pay to help maintain the strategic storage.

Pretty disappointed I started buying in before Covid but don't think that can be held against me. As it got cheaper and had the appearances of an underlying business that can be saved I have been buying more. Suspect it will be a few years before this business gets out of the suck.

[SailorRob]

Ahh, NZR my perennial pet loser.

Do I like a business that is super cyclical, debt ridden, needs huge capital expenditure, is a commodity producer with super uncertain future margins. Not really. But I do like it at the bottom of the cycle.

Market cap got down to ~$130 million
Debt is 238 million

Not too worried about decommissioning cost as turning it into a import terminal means that can just sit as a big rusty, expensive contaminated paper weight.

Regarding NZR land, pipeline and port facilities being worth peanuts, imagine trying to rebuild the port, pipeline tanks and how much that would cost. I don't even think it would be possible to rebuild those assets under the current RMA environment. No other feasibly way to get oil into Auckland other than RAP so it has a unreal moat. So NZR has a 'hidden' infrastructure business storing and supplying imported oil for the upper North Island (40% of all NZ demand)

In the 2020 annual report they give a hint with estimated fee income of a tolling facility being $100 million a year. I don't have a feel for operational costs to run the system but suspect it is well less than $100 million. Lets say $50 million to run, conservative price to earnings of 15 (feels cheap for what is essentially a utility/infrastructure business) that means what 750 million for the whole enterprise? At its lowest debt and market cap combined was $368 million.

Things I am worried about and add significant uncertainty:
1) Terminal conversion is a big uncertainty but we will wait and see on that one.
2) Setting tolling fees for the new terminal, I worry that NZR is too influenced by the customer shareholders even though they are less than 50% of shareholders now. Hopefully as Naomi James is from SANTOS rather than appointed from one of the shareholder customers some hard nosed bargaining will be done. Particularly around third party usage of the pipeline, badly negotiated 10 year contracts would be a significant burden if they mess up now.
3) Govt regulations. Labour seems to be flexing on a whole range of industries, particularly unpopular ones. Hopefully they don't whack NZR with a big stick to win some short term political support.

Things that would be awesome:
1) Improving margins that means the plant can generate revenue for a few more years to pay down debt before shelving the plant before its next big expense.
2) The far out there hope that the Govt decides, like Australia is talking about, that having the capability to refine oil is strategic in a national security sense and put a petrol surcharge on to make it happen or even pay to help maintain the strategic storage.

Pretty disappointed I started buying in before Covid but don't think that can be held against me. As it got cheaper and had the appearances of an underlying business that can be saved I have been buying more. Suspect it will be a few years before this business gets out of the suck.


Waikaka, generally agree but a couple of things;

There is absolutely no uncertainty around the terminal conversion (unless you mean costs) it is 100% for certain happening and soon.

They don't have a clue what revenue will end up being or costs really, it's a big guess at the moment, they can say what they would like it to be but that's all...

Decommissioning costs are still a liability and some may not care about them but if other shareholders do then it will still weigh on the price.

No margin will ever mean running for a few more years, not even if we were pinned to the ceiling, I'm telling you now and rub it in my face if I'm wrong... The terminal is coming hard and fast. No government support will change that fact unless they nationalised it by force!

The replacement cost means nothing at all, just its ability to generate cash. Think of the replacement cost of the Refinery... Still worth nothing. CCR cost us 365 in 2015... Whole company worth much less now. Yes the pipeline and Jetty are pristine assets with a real moat but all things considered... what are they really worth.

Nobody in their right mind would accept ownership of the business for free all things considered, they would be on the hook for the debt, which will be doubled from here and then have to generate enough cash to service it and pay it down and at some point sort the site out...

[ralph]

Ahh, NZR my perennial pet loser.

Do I like a business that is super cyclical, debt ridden, needs huge capital expenditure, is a commodity producer with super uncertain future margins. Not really. But I do like it at the bottom of the cycle.

Market cap got down to ~$130 million
Debt is 238 million

Not too worried about decommissioning cost as turning it into a import terminal means that can just sit as a big rusty, expensive contaminated paper weight.

Regarding NZR land, pipeline and port facilities being worth peanuts, imagine trying to rebuild the port, pipeline tanks and how much that would cost. I don't even think it would be possible to rebuild those assets under the current RMA environment. No other feasibly way to get oil into Auckland other than RAP so it has a unreal moat. So NZR has a 'hidden' infrastructure business storing and supplying imported oil for the upper North Island (40% of all NZ demand)

In the 2020 annual report they give a hint with estimated fee income of a tolling facility being $100 million a year. I don't have a feel for operational costs to run the system but suspect it is well less than $100 million. Lets say $50 million to run, conservative price to earnings of 15 (feels cheap for what is essentially a utility/infrastructure business) that means what 750 million for the whole enterprise? At its lowest debt and market cap combined was $368 million.

Things I am worried about and add significant uncertainty:
1) Terminal conversion is a big uncertainty but we will wait and see on that one.
2) Setting tolling fees for the new terminal, I worry that NZR is too influenced by the customer shareholders even though they are less than 50% of shareholders now. Hopefully as Naomi James is from SANTOS rather than appointed from one of the shareholder customers some hard nosed bargaining will be done. Particularly around third party usage of the pipeline, badly negotiated 10 year contracts would be a significant burden if they mess up now.
3) Govt regulations. Labour seems to be flexing on a whole range of industries, particularly unpopular ones. Hopefully they don't whack NZR with a big stick to win some short term political support.

Things that would be awesome:
1) Improving margins that means the plant can generate revenue for a few more years to pay down debt before shelving the plant before its next big expense.
2) The far out there hope that the Govt decides, like Australia is talking about, that having the capability to refine oil is strategic in a national security sense and put a petrol surcharge on to make it happen or even pay to help maintain the strategic storage.

Pretty disappointed I started buying in before Covid but don't think that can be held against me. As it got cheaper and had the appearances of an underlying business that can be saved I have been buying more. Suspect it will be a few years before this business gets out of the suck.
A very interesting and sensible post agree with most of it and I definitely think the government will have to keep the refining capacity going ,no matter how P .C .they are ,the future is not really going to be what we think / told it is.

[Sharp737]

Yes, I agree also. The light has almost gone out...but not yet! The positive margins over the last two months is boding well and we'll see what happens.
Labour and the Greens don't have a clue with some of these things. Better stop there.....
What makes me laugh is I see on TV recently that we are short of power and that we have to fire up our coal fire power stations at Huntley LOL. What a joke! And they think we should all go electric? Give me a break.

[ralph]

We are going to be needing oil and gas for a long time ,and more of it as the team grows .

[SailorRob]

Yes, I agree also. The light has almost gone out...but not yet! The positive margins over the last two months is boding well and we'll see what happens.
Labour and the Greens don't have a clue with some of these things. Better stop there.....
What makes me laugh is I see on TV recently that we are short of power and that we have to fire up our coal fire power stations at Huntley LOL. What a joke! And they think we should all go electric? Give me a break.

Of course the government doesn’t have a clue and of course we are still in the early stages of the hydrocarbon industrial economy. These are not the arguments.

The light is out. Positive margins are having zero effect, we are still on the floor. We've been shutdown for a Month. We are running a very different operation with much reduced throughputs and efficiencies.

This will be very obvious in the upcoming throughput report for March/April

This is to tide us over until the process of transitioning is complete.

In any business when ALL your customers want something then you need to provide it, particularly when your customers are also your owners.

[biker]

The market seems to like the latest announcement. Happy to have bought at 49c

[Schrodinger]

The market seems to like the latest announcement. Happy to have bought at 49c

Decomissioning $200M? maybe need a cap raise to pay for it? Further outlook looks good though however profit margins will be interesting to calculate.

[ralph]

The market seems to like the latest announcement. Happy to have bought at 49c
That was very brave then ,and it has worked out well for you well done you :t_up:

[Sideshow Bob]

Up 10% so far today....!!

[Nor]

The old inverse bell curve! !!!

[ralph]

This is a definite loser for the past whilst the covids displacement of the airways has been rampant as /if the vaccines change life to summat like normality it should continue to trend up .
AS will other covid ravaged stocks of course

[Sharp737]

Go you little beauty! Money in the bank frank... all going well of course
W

[Nor]

Exxon has a climate activist on the board. WSJ. What next?

[ralph]

Exxon has a climate activist on the board. WSJ. What next?
Ha They will be going pink next

[Nor]

If they painted the refinery pink it might get the government to cough up some sort of subsidy.

[ralph]

Don't for get the riparian planting all helps the sp

[Waiuta]

With the agreement with ZEL somewhat sorted, I'm beginning to wonder if ZEL might be looking to take a more active role here with imported refined. They're the biggest player here and it would seem to make quite a lot of sense long term.

Like most holders I'm well and truly down the drain on this but I'm not going to bail when there's hope on the horizon. As a rule I love anything you put petrol in but AIR, ZEL & NZR have been the scourge of my modest portfolio.

GLTAH

[ralph]

Its a bit like atm if you didn't sell out near the top or on the way down ,you will have long term pain .But Biker must have bought in recently very brave decision and is doing well & others of course whom may say how well .
I think you will get something like even with nzr & air depending on just how even you need to get ,but personally the margins have gone imho for zel .
I do think zel are trying to branch out & diversify as they all are, or should be but that's another story .

[Waiuta]

AGM 29th June 2021

I have given my proxy to NZ Shareholder's Assn to vote how they see fit.

[Waikaka]

https://www.rnz.co.nz/national/programmes/morningreport/audio/2018797986/government-warned-security-risks-to-ending-refining-in-nz

Few interesting points on morning report today.

If the Govt want the security benefits that the refinery supplied then they can pay for it. Suspect it is too late now.

[winner69]

NZR one stock I don’t really follow but was really surprised when I read that Forbar had raised its target price 104 and thought wow that can’t be true

Even more shocked when I saw what the share price actually is …didn’t know it had collapsed so much.

Might get interested

[ralph]

Yep looking like it could be a winner now at 76 c

[Waikaka]

When facts change, best I change my view to fit.

I started reading the explanatory booklet and my feeling going in was capitulating at super low refining margins takes away from the upside that might come in the next few years. This would be by managing to eke out the last bit of life before decommissioning the refinery and converting it to a terminal.

But those subsidised mega refineries in India and South East Asia mean that without state support for a strategic bit of infrastructure like a refinery then short and medium term NZR is toast. Hard to compete with govts who are willing to subsidies their petrochemical industries for strategic or economic reasons and completely ignore the economics and smash the GRM down.

Gas spot up 135% over the last 5 years and electricity up 240% over same period, hard to stay profitable in those circumstances.

Still digesting the commercial terms of the deal (at page 42 of 160 in the explanatory booklet - phewww) but at this stage ill be voting for the proposal.

For what it is worth not buying at these prices but pleased I kept loaded up around the mid 40c mark.

[Waikaka]

Always worry about the employees in a situation like this. I wish it was a less cyclical business but hopefully they can do well elsewhere. Super skilled workers.

Checked the plan for the pensions and looks like they have offered to cash out those that are still on the old (pre 2002) defined pension plan and medical plan (pre 1996).

I expect the cash offers wont be as valuable as the defined benefit they are losing but suspect the workers see the writing on the wall.

[ralph]

I dont see why we should not subsidise/support the only refining infrastructure in the N Z ,its going to mean we are at the whims and vagaries of foreign powers/companys even more .


When facts change, best I change my view to fit.

I started reading the explanatory booklet and my feeling going in was capitulating at super low refining margins takes away from the upside that might come in the next few years. This would be by managing to eke out the last bit of life before decommissioning the refinery and converting it to a terminal.

But those subsidised mega refineries in India and South East Asia mean that without state support for a strategic bit of infrastructure like a refinery then short and medium term NZR is toast. Hard to compete with govts who are willing to subsidies their petrochemical industries for strategic or economic reasons and completely ignore the economics and smash the GRM down.

Gas spot up 135% over the last 5 years and electricity up 240% over same period, hard to stay profitable in those circumstances.

Still digesting the commercial terms of the deal (at page 42 of 160 in the explanatory booklet - phewww) but at this stage ill be voting for the proposal.

For what it is worth not buying at these prices but pleased I kept loaded up around the mid 40c mark.

[Sideshow Bob]

I dont see why we should not subsidise/support the only refining infrastructure in the N Z ,its going to mean we are at the whims and vagaries of foreign powers/companys even more .

If we are importing oil for said refinery, aren't we still at the whim and vagaries of foreign powers/companies??

I would have thought only difference would be probably have more options for oil than refined products.

Is it better to refine your own or buy cheaper from other sources??

[Waikaka]

Your right that the crude still needs to be purchased overseas. The main benefit to govt support for the refinery, is that a working refinery will store a lot more oil than a terminal which is focused on moving material through as fast as possible. Grant Samuel mention in their section, currently the refinery holds 18 days supply for the whole of NZ. As an import terminal it would only hold enough for AKL and Northland. This means the system becomes a lot more fragile if global shipping is effected and a shipments are delayed.

Note the aussies often take a different view on this sort of stuff so interesting they are putting in up to $2.3 Billion to upgrade and keep open Geelong and Lytton refinery. Can't see labour/Greens getting behind that sort of support for NZR.

Got to the end of the report and ill be voting yes to the plan.

[Sideshow Bob]

Your right that the crude still needs to be purchased overseas. The main benefit to govt support for the refinery, is that a working refinery will store a lot more oil than a terminal which is focused on moving material through as fast as possible. Grant Samuel mention in their section, currently the refinery holds 18 days supply for the whole of NZ. As an import terminal it would only hold enough for AKL and Northland. This means the system becomes a lot more fragile if global shipping is effected and a shipments are delayed.

Note the aussies often take a different view on this sort of stuff so interesting they are putting in up to $2.3 Billion to upgrade and keep open Geelong and Lytton refinery. Can't see labour/Greens getting behind that sort of support for NZR.

Got to the end of the report and ill be voting yes to the plan.

Thanks for your comments - appreciated.

[SailorRob]

100% guaranteed? Care to make a little wager? SailorRob and Bull, lets just wait and see say in a year or two.
Just joking about the wager but I'll remember these comments

It's good you remembered these comments Sharp737.

So did I...

I offered you a big wager but never heard back...

As I said 100% guaranteed and I stand by it.

[SailorRob]

Sharp737 22/07/2020 Yes saw that but we shall see see. This going to be interesting. Tank terminal only? This is not a given. It may or may not. Even though things have been tough and have looked bad for some time, some of us believe 'not'.



Unfortunately it is a given. 100% Guaranteed unless the taxpayer was to fund it long term.

The only issue is when. Look at the capital allocation over 15 years, any capital invested or earnings that are retained are quickly destroyed. There is no way out of that. Occasionally it can make a return on 'price' but never a return on invested capital, and that is what the game is all about.

If you can buy in at massive discounts to book value as you can now then you might see a return short term but as a company huge amounts of capital have to be found to keep things going and over the whole cycle it has been conclusively proven that this capital is destroyed.

There is no hope it's just time.

[Sharp737]

SailorRob, how nice of you to remember! Well, it's not over yet until the f...l...sings.
And if it does go to a terminal only, it will be a sad day for many people, and bad for NZ in that we will be at the mercy of the overseas refiners.

But of course, as an investor it has been good of late. It is looking up and it does not look like it's going to stop. Can't argue with the market so at least jump on for the ride.

[SailorRob]

SailorRob, how nice of you to remember! Well, it's not over yet until the f...l...sings.
And if it does go to a terminal only, it will be a sad day for many people, and bad for NZ in that we will be at the mercy of the overseas refiners.

But of course, as an investor it has been good of late. It is looking up and it does not look like it's going to stop. Can't argue with the market so at least jump on for the ride.


Sad and bad agreed.

It is over, it's not an 'if' it goes to a terminal. I've been pointing this out for a very long time as well as the reasons for it that cannot be escaped.

As with this mornings Sun rise, we cannot technically know it will occur for sure until it does however it will in about 4 hours, just like the Refinery will become a Terminal in about 9 Months.

But of course, as an investor it has been good of late. No... not as an investor... you mean as a speculator it has been good as of late. The rise from around 40c to 80c will have recovered you a very small fraction of losses to date speculating in this dog.

There has been no information at all yet to allow a investor to make an investment.

It is looking up and it does not look like it's going to stop. Can't argue with the market so at least jump on for the ride. This is the definition of speculating, absolutely nothing in that line pertains to investing. This is what got people into trouble in the first place.

How about a detailed analysis of the documents regarding the terminal conversion and subsequent operation and then an informed investment hypothesis clearly explaining how as an equity owner you will see cash generated and distributed to you as well as highlighting all risks, specifically critiquing the figures presented, paying particular attention to CAPEX and the fact that no agreements have actually even been reached...

I doubt I will see this as it's easier to just jump on for the ride as it looks like it's not going to stop - just like it did as it approached $4...

DONT BE SUCKERS

[SailorRob]

Unreal no posts today after the Shareholder vote.

Less than 1% of votes were to stay refining I believe.

Nobody has taken me up on my challenge in my post above to provide a detailed investment case... no prizes for guessing why they haven't.

[ralph]

Unreal no posts today after the Shareholder vote.

Less than 1% of votes were to stay refining I believe.

Nobody has taken me up on my challenge in my post above to provide a detailed investment case... no prizes for guessing why they haven't.


Yuup Rob was thinking that myself ,what does this mean for sp was up to 90 today ,when is best to cash out ! !
Also as a country we will be reliant on other countries for fuel could be fun times ahead

[SailorRob]

Sharp and Waikaka put up such a fight (won't say good) for so long but when they have gone quiet, indeed it's grim.

[Waikaka]

Sharp and Waikaka put up such a fight (won't say good) for so long but when they have gone quiet, indeed it's grim.

Luckily for me, busy living life rather than worrying about the ups and downs of share prices. Really healthy buying, holding and forgetting about it.

My business case is simple. RAP, jetty, Port and land have an intrinsic value. Shame the refinery is a big rusty paper weight but I didn't pay for it when I was buying in the ~40c range. Gonna cost a bomb to remediate all the crap they have buried around the place.

Shame I bought some before Covid blew everything up but pleased I bought more as the investment case got stronger (with the price getting cheaper) and now happy to hold a boring infrastructure asset for 10 years and see what happens. I thought I was buying a gutter stock that might run the refinery for another 5 years to get the last puffs out but oh well.

Def not buying at these prices but happy to top up if it gets around 50c again.

[Nor]

Seems to have been run for the benefit of the Northland engineering community. Bad luck about the redundancies.

[Sideshow Bob]

Seems to have been run for the benefit of the Northland engineering community. Bad luck about the redundancies.

Not sure of the accuracy, but TV news said 1,000 contracters worked there. Obviously not fulltime but would seem to have a as much an impact on those businesses as the staff that work at the refinery.

[Snoopy]

A refineries margins are relative to the ability of it to produce higher quantities of desired products (remember the cracking process produces bitumen, fuel oil, jet fuel, naptha, gasoline etc) from the relative qualities of available crude. The recent past has seen the US importing a large amount of gasoline and as a result the global prices for the higher temperature distillates has increased. Note with this point that gasoline alternatives going to the US market will no longer be available for other markets such as NZ. A further important consideration is the relative freight rates on crude vs refined products.

Also as the US has strict gasoline rules this means it can only import from advanced refineries or refineries that have used sweet crude (low sulphur) for the purpose of higher distillate output. As more gasoline is produced from high API crudes (such as WTI and Brent) these have sold at a premium. Lower API and Sour crudes has sold at a widening discount.

Marsden Point is not a particularly modern facility and has not overly benefitted from this crude quality spread change but rather in the global increase in refining spreads.


Article below is on the Australian refinery situation

https://www.whichcar.com.au/car-news/government-subsidises-australian-oil-refineries-to-keep-them-open

Just as much emphasis is being placed on the quality of fuel produced, particularly as regards sulphur content, as the price. The post that I quoted above is from 2005, so I don't know how the market has evolved since. But my reading of it is that markets who do not have limits on the sulphur content of fuel will be given the lower quality stuff, albeit at a cheap price. High sulphur fuel cannot be used in the latest generation of efficient internal combustion petrol engines, and engines that do run on those fuels are higher polluters.

My questions:

1/ What is the sulphur content in petrol currently being produced by NZR, in parts per million of sulphur?
2/ What requirements are there in the future for the fuel companies to supply low sulphur fuel into New Zealand?

SNOOPY

[SailorRob]

Article below is on the Australian refinery situation

https://www.whichcar.com.au/car-news/government-subsidises-australian-oil-refineries-to-keep-them-open

Just as much emphasis is being placed on the quality of fuel produced, particularly as regards sulphur content, as the price. The post that I quoted above is from 2005, so I don't know how the market has evolved since. But my reading of it is that markets who do not have limits on the sulphur content of fuel will be given the lower quality stuff, albeit at a cheap price. High sulphur fuel cannot be used in the latest generation of efficient internal combustion petrol engines, and engines that do run on those fuels are higher polluters.

My questions:

1/ What is the sulphur content in petrol currently being produced by NZR, in parts per million of sulphur?
2/ What requirements are there in the future for the fuel companies to supply low sulphur fuel into New Zealand?

SNOOPY


For Petrol it's 10 ppm maximum for both NZR production and for any fuel sold in NZ. We follow European regulations.

Desulphurisation of petrol is pretty simple and cheap to do, for diesel its more complicated.

We spent 180 million dollars in 2006 to upgrade processing to meet new Sulphur requirements for diesel (under 10 ppm) and benzine in petrol.

[SailorRob]

Not sure of the accuracy, but TV news said 1,000 contracters worked there. Obviously not fulltime but would seem to have a as much an impact on those businesses as the staff that work at the refinery.

Long term average has been total number on site around 550, this is contractors and permanent staff, but some of the contractors have worked here for 40 years or more.

Shutdowns and projects them employed far more people for the duration.

On top of this are the people working in town and for the wider supply chain that don't work directly on site.