CHI - Channel Infrastructure Ltd (NZR)

[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.