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NZ Refining wins 64.5% support for $365M upgrade

Friday 27th April 2012

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Shareholders of NZ Refining have narrowly passed the board’s plans to spend $365 million on an upgrade that was opposed by two of its major oil company owners, believed to be Mobil and Chevron, owner of the Caltex brand.

While support from the company’s 27 percent of non-oil company shareholders was almost unanimous at 99.8 percent, the split between oil company shareholders’ votes was 56 percent in favour to 44 percent against.

The opposition vote roughly equates to the combination of the shareholdings of Chevron and Mobil holdings as a proportion of the oil company shareholders in the country’s only oil refinery.

The resolution required 50 percent shareholder support. A Chevron spokesman said the company “acknowledges the decision by shareholders”, supports the project, which “may see benefits to the New Zealand supply chain.”

Shareholder rejection would still have seen a $105 million upgrade proceed to keep the refinery running past 2015 by replacing obsolete elements of the plant.

The larger Continuous Catalyst Regeneration Platformer project also substantially improves the plant’s energy efficiency and environmental outcomes, but directors warned before today’s annual meeting in Whangarei that dividends would be hit while the company fully paid back debt raised to complete the project as quickly as possible.

That drew complaints from shareholders at today’s meeting, with former Contact Energy director John Milne castigating the board for having “no dividend policy” and treating dividends as “discretionary” when the company had strong cashflows, retained earnings, and was virtually debt-free.

Chairman David Jackson appeared to pre-empt that expected criticism by announcing a review this year of the refinery’s capital structure and dividend policy. NZ Refining shares rose 4 percent to $2.86 immediately after the announcement.

The less than unanimous result showed the New Zealand downstream fuel industry continuing to “evolve and fragment,” said Mike Bennetts, the managing director of 17 percent refinery shareholder Z Energy, which supported the CCR project, along with BP. “

While we think the outcome today is the best for New Zealand, what we have seen today, is that some major shareholders have expressed a preference for a different outcome.

“This is consistent with what we are seeing across New Zealand’s fuel supply chain, with a reluctance to invest capital in New Zealand’s infrastructure and an increasingly tight and fragile supply chain developing as a result.”

BP managing director Mike McGuinness said that as the largest single shareholder of Refining NZ (24 percent), BP had taken a long term view on a key piece of national infrastructure.

“BP is committed to building and supporting infrastructure that will ensure New Zealand’s energy needs are met.” Z’s Bennetts said the global companies had made it clear that investing in overseas markets rather than in “small and mature markets like New Zealand made sense as the returns in oil and gas production and rapidly expanding retail markets were more than double what is generated in New Zealand.”

Chevron announced yesterday it would spend $4 million upgrading storage tanks at Timaru that have been out of service and which Z was pressuring Chevron either to upgrade or relinquish.

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