Viva’s foot to the floor

Refiner lifts production, but margins shrinking

THE Geelong refinery performed strongly through the first half of the year to process 21.4 million barrels of oil, up 12.1 per cent on the corresponding period last year.

In its 2019 first half results, Viva Energy reported that refining operations delivered underlying earnings of $18.4 million, at the upper end of a revised forecast issued in June but down 61.7 per cent on 2018 amid continued weakness in regional refining margins.

Geelong refining margins have dropped 31 per cent on last year, down to US$5.10 a barrel.

But the company said the operational performance of the refinery was “particularly strong” with its operational availability increasing from 85.5 per cent to 94 per cent.

Chief executive Scott Wyatt said that in response to very challenging gasoline refining margins, diesel production had increased to record levels.

Diesel production rose to 40 per cent of total production, up from 36 per cent in the financial year ended on December 31 last year.

“This is a strong outcome and reflects improvements in crude sourcing that has provided Geelong with greater processing flexibility and reduced exposure to lower gasoline margins,” Mr Wyatt said.

He said the company’s revised retail alliance with Coles and its acquisition of the Liberty wholesale business, subject to regulatory approvals, created some exciting growth opportunities.

In February, Coles entered into a new agreement with Viva Energy to forgo its retail fuel margin, instead receiving a one-off payment of $137 million, and giving Viva pump pricing control.

“The implementation of a more competitive pricing strategy has successfully stabilised weekly sales volumes after a period of decline through this retail channel, and a range of marketing programs have been delivered to reactivate lapsed customers,” Mr Wyatt said.

Viva Energy flagged a tough outlook for retail earnings in the second half due to lower than average retail margins amid heightened competition, oil price volatility and a lower Australian dollar.

Viva Energy's underlying earnings of $171.6 million were at the upper end of the June revised guidance of $150 million to $180 million.

The company declared an interim dividend of 2.1 cents per share.