NZR
15/09/2014 12:17
GENERAL
REL: 1217 HRS The New Zealand Refining Company Limited
GENERAL: NZR: Independent Review of Processing Arrangements
Refining NZ has today published the findings of the latest independent review
into the Company's processing arrangements with its customers, completed by
Hale and Twomey.
The Company's processing arrangements are reviewed annually by the
Independent Directors and Refining NZ management to ensure the arrangements
remain fit for purpose and are fair to all shareholders, while the
Independent Directors periodically commission an independent third party to
review the arrangements. This is the third independent review in five years
with the previous two carried out by oil industry experts, IHS Energy
(formerly Purvin and Gertz).
Hale and Twomey were engaged by Refining NZ's Independent Directors to assess
the following:
- If the current processing agreements provide Refining NZ shareholders with
an appropriate financial return, and
- Whether the company provides a competitive supply of product to its
customers over the business cycle, and
- If the benchmarks and associated premiums for valuing crude and product in
the processing fee calculation are appropriate, and
- If the current fee structure is the most suitable in comparison to the
alternatives available.
In summary, the Hale and Twomey report made the following conclusions:
- Over a 10-year period Refining NZ has provided its shareholders with an
appropriate return (i.e. a return with a margin above the weighted average
cost of capital (WACC));
- Over a 10-year period Refining NZ has provided its customers with a
competitive supply of products (i.e. better than the import equivalent);
- During periods when refining margins are low (including the current
period), Refining NZ's return is under WACC and the supply to customers is
not competitive;
- The benchmarks used for crude and product values in the fee calculation are
appropriate although freight benchmarks that better reflect actual market
costs in the region have become available.
With respect to the processing fee structure, Hale and Twomey considered four
alternative models to the current arrangements: fixed fee or regulated
return; part fixed fee/part variable fee; netback model and merchant
refining.
Hale and Twomey reported, "The current processing fee structure and split of
gross refining margin provides an appropriate balance between Refining NZ's
return and customer competitiveness. Alternative structures are unlikely to
provide the same balance and alignment, therefore would not prove to be
sustainable over the typical business cycle for refineries."
A full copy of the Hale & Twomey report is attached to this release and is
also available to shareholders via the Refining NZ's website at
www.refiningnz.com.
ENDS
Notes to Editors:
The current processing arrangements came into play in 1995 and are intended
to provide Refining NZ sufficient funds for investment in the business while
giving customers sufficient incentive to utilise the refinery's operations.
Hale & Twomey Limited. Established in 2001 by principals Richard Hale and Ian
Twomey, the energy consultancy provides strategic advice based on a
comprehensive understanding of New Zealand and international energy markets.
Both partners have held senior executive positions in major multi-national
energy companies, in areas including exploration and production,
international oil trading, refining and supply.
For further information:
Greg McNeill
Communications and External Affairs Manager
T: 09 432 82311 M: 021 873 623 E: [email protected]
End CA:00255248 For:NZR Type:GENERAL Time:2014-09-15 12:17:45
