Viva Energy sinks deep into the red on Geelong refinery losses
The fuels retailer has launched a business recovery plan after Geelong refinery problems led it to a loss for 2020.
Viva Energy has sunk into the red for the 2020 financial year after its Geelong refinery crashed to a $95m loss, with the fuels refiner conceding the plant would have been forced to shut without a short-term subsidy lifeline from the federal government.
The big loss for its Geelong refinery underlined torrid market conditions which have sparked decisions by BP and ExxonMobil to shut down their plants, hiking fears over the nation‘s energy security, with Viva and Ampol the only remaining facilities operating.
Viva has taken up an interim government payment designed to bridge the gap for Geelong until a long-term package kicks in by July 1, 2021. The Melbourne-based company said the subsidy had been vital in keeping the refinery afloat, underscoring the financial pressures that have mounted on the facility.
“If we didn’t have the announcement last year and the interim support package we had in place for the first half of this year, we probably wouldn’t have a refining business,” Viva chief executive Scott Wyatt said.
Viva has taken up a minimum payment of 1c per litre for production of petrol, diesel and jet fuel from January 1 under an accelerated subsidy designed to bridge the gap until a long-term package kicks in by July 1.
It expects the refinery production payment will contribute $30m to underlying earnings for the six months from January 1, 2021 through June 30.
The long-term framework would be focused on a refinery production payment, a minimum stockholding for fuel and a market funding mechanism for support, Viva said.
“It will be those three things and not entirely the production payment, although that will be a very important component,” Mr Wyatt said. “The way those three things work together we hopefully give us the confidence to move forward and continue to refine at Geelong.”
Competitor Ampol declined to take up the interim offer but said on Monday it remains locked in talks with the Morrison government over how a long-term deal might work for the industry.
Viva said it would likely cost at least $200m to convert Geelong into an import facility, based on the costs of converting its Clyde refinery in Sydney, while noting it was not currently considering that as a live option.
“Short term the focus is return to positive earnings in refining, long term to achieve a minimum sustainable return,” Ord Minnett analysts said.
Viva fell to a loss of $36m, with underlying profit after tax declining from a $136m profit a year ago, and against a loss of $17m-$47m guided to by the company in December. Still, analysts cheered rising retail fuel margins and a good performance from its broader retail network.
Sales volumes for 2020 fell 16 per cent to 12,339 million litres, reflecting softer demand amid the pandemic, while earnings for its retail arm grew 19 per cent to $671m as fuel sales rebounded quickly as restrictions were eased and fatter fuel margins mitigated the sliding volume.
Geelong refinery earnings fell to a loss of $95m, compared with a loss of $89m-$99m forecast by the company and against a profit of $117m in 2019 and will not pay a final dividend.
Its mooted LNG import plant at Geelong would cost between $250m-$300m with plans to start up in early 2024.
A business recovery plan also aims to deliver sustained improvement through 2021 to 2023.
Commercial earnings were down 20 per cent to $238m, driven by a 56 per cent drop in aviation sales, although the marine business remained strong.
The company supplies fuel to more than 1250 petrol stations through the Shell Coles Express service stations.
Viva shares rose 6 per cent to $1.76 on Thursday.