Lytton refinery under pressure as Ampol slumps to loss
Ampol’s Lytton fuel refinery is facing more questions about its sustainability after a major contribution to a heavy first-half loss.
Ampol plans to closely review the performance of its Lytton oil refinery in Brisbane and is open to government support for the plant after it slumped to a $59m loss in the first half, adding to broader industry concerns over the longevity of Australia’s four remaining refining facilities.
The fuels retailer saw writedowns and inventory losses send it to a $626m statutory net loss as “unprecedented challenges” in the market hit its performance.
The loss at Lytton compared with a $1m profit a year ago partly represented Ampol’s decision to close the plant for maintenance but also tough margins as new maritime fuel regulations and COVID-19 demand destruction hit home. It plans to restart Lytton in September based on its call that refining will deliver a better earnings performance than importing products, but conceded the balance could shift.
“We need to see how the fourth quarter now plays out. There is a lot of uncertainty out there due to COVID but we’re always evaluating essentially make versus buy decisions based on the economics,” Ampol chief executive Matt Halliday told The Australian.
“Clearly when the refinery is challenged as much as it is at the moment, we’re very actively pursuing other measures that can continue to drive efficiency improvements. All of that is going to be an important part of ensuring the refinery can generate positive economics.”
Rival Viva Energy warned its troubled Geelong refinery could be forced to shut after the facility plunged to a steep loss in the first half of 2020, with the future of the plant now under review.
Several of Australia’s four remaining refinery operators and fuel suppliers are weighing the future of their plants amid soft margins, high costs and plunging demand due to pandemic lockdowns.
Prime Minister Scott Morrison in June kicked off a long-term strategic review of the nation’s refining industry which could see the federal government offer its support to ensure the sector remains operating, with consolidation also seen by analysts as a logical conclusion.
Refinery losses showed the scale of the task ahead, the Ampol chief said, while stating the company would remain open to government assistance.
“The government really understand the conditions in refining are very challenged and are likely to remain very challenged so we certainly welcome that recognition and continue to have discussions with them around what it means for the industry,” Mr Halliday said. “Clearly the ongoing impact from huge demand destruction from COVID-19 is going to ensure the market conditions remain volatile and also very challenged.”
Ampol recorded a statutory net loss of $626m, down from a $155m profit in 2019 due to $434m in inventory losses and a $355m pre-tax impairment split between a $233m writedown of its convenience retail stores based on a sustained decline in demand at historic margins, $80m on Lytton and $42m on closing marginal retail sites.
Profit on a replacement cost basis fell 11 per cent to $120m from $135m for the same period last year and much lower than RBC’s forecast of $158m. The company in June had pulled its profit guidance for the six month period due to the COVID-19 pandemic and oil market volatility.
Earnings in its fuels and infrastructure unit, which excludes Lytton, fell 11 per cent to $171m from $192m but the overall performance including the refinery marked a 41 per cent slump to $112m from $193m. Convenience retail was a bright spot, lifting 47 per cent to $125m while overall group earnings on a replacement cost basis fell 13 per cent to $221m.
An interim dividend of 25c per share will be paid, down from 32c a share last year.
Ampol, previously known as Caltex, rebranded after using the name under licence from US giant Chevron, which has re-entered the market through its Puma Energy acquisition.
The first Ampol sites have started to appear in Sydney and Melbourne. A national rollout will follow in 2021 and use of the Caltex name will be officially shelved by the end of 2022.
Ampol shares fell 4.4 per cent to $26.96.
