Refinery faces $220m charge

COVID19 impacts and reduced refining margins on New Zealand’s only oil refinery are becoming clearer, Refining NZ announcing an anticipated $158 million posttax impairment charge to be taken in its firsthalf earnings, to be announced on August 17.

The company is already in the middle of a strategic review of its operations that is expected to close refining activity and result in the Marsden Point facility becoming a refinedfuels import terminal in the future.

Its shares had lost twothirds of their value over the last year but were unchanged from Monday night’s closing price of 71c apiece when trading opened yesterday.

In a statement to the NZX, Refining NZ said it anticipated a pretax, noncash impairment charge ‘‘in the order of $220 million before tax ($158 million after tax) in the 2020 halfyear results.’’

This was ‘‘primarily due to revised refining margin assumptions, reflecting the excess refining capacity in the AsiaPacific region and the effects of the Covid19 pandemic on transport fuel demand, particularly jet demand.

Refining margins have fallen below a set fee floor in recent months, requiring its transport fuel shareholders — Z Energy, BP, and Exxon Mobil — to pay topup fees rather than earn dividends from the refinery. The trio collectively own 42.6% of the refinery’s shares.

Despite the impairment, the company said it remained ‘‘comfortably’’ within the 45% senior debt gearing covenant under its facility agreements, which will sit at 27% following the impairment and ‘‘which will also not impact on interest cover ratios that the company continues to meet in the current low margin fee floor environment.’’ — BusinessDesk