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Thread: NZR

  1. #1901
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    Quote Originally Posted by Nor View Post
    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.

  2. #1902
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    Quote Originally Posted by Waikaka View Post
    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
    Attachment 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.

  3. #1903
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    Quote Originally Posted by SailorRob View Post
    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.

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    Quote Originally Posted by Nor View Post
    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?

  5. #1905
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    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.

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    Quote Originally Posted by Nor View Post
    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.

  7. #1907
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    Quote Originally Posted by Nor View Post
    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

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    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.

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    Quote Originally Posted by Sharp737 View Post
    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.

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    Quote Originally Posted by SailorRob View Post
    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.

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    Quote Originally Posted by Nor View Post
    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.
    Last edited by SailorRob; 24-10-2020 at 10:28 AM.

  12. #1912
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    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?

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    Quote Originally Posted by Nor View Post
    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!

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    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.

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    ‘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.








    Last edited by SailorRob; 26-10-2020 at 05:07 PM.

  16. #1916
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    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?
    bull
    One step ahead of the herd

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    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!

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    Nice to see the debt coming down. Every bit counts

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    Quote Originally Posted by Sharp737 View Post
    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.

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