Could Viva Energy Recover From Its Refinery Margin Collapse?

  • Dec 21, 2018 AEDT
  • Team Kalkine
Could Viva Energy Recover From Its Refinery Margin Collapse?

Viva Energy’s shares crashed after the company revealed lower than expected refining margin for November 2018.

Energy giant Viva Energy Group Limited (ASX: VEA) announced that the Geelong Refining Margin settled at US$7.1 per barrel (BBL) in November 2018 compared to the company’s revised guidance of US$8.0 per barrel. This wide gap between the actual and the forecasted margin led the market sentiments to take the back gear as Viva Energy’s stock fell more than 5% in a day-trade.

Already, the company had reduced its guidance for Geelong Refining Margin (GRM) from the previous forecast of US$9.2 per barrel to US$8.0 per barrel for November and December 2018. And the actual performance achieved by the company was even lower than the downgraded guidance.

Fuel supplier explained that the November 2018 performance was impacted by an unexpected outage of the third-party polypropylene plant co-located at the Refinery site which led to the reduction in feedstock’s demand and operational efficiency. Further, the company has been witnessing a continuous downfall in its regional refining margin. The collapse is trending at such a pace that Viva Energy’s December margins have moved even below November performance. As a result, the company expects its actual GRM for December to be lower than the actual November results.

In the revised guidance for Fiscal 2018, the company downgraded its earnings as well as profit expectations. Now, Viva Energy forecasts its underlying EBITDA from refining business to be circa $150 million, compared to the previous expectation of $216.7 million. Subsequently, Net profit After Tax (NPAT) of the Group is now estimated to reach $280 million for FY18, while earlier it was forecasted to be $324.1 million.

As per the today’s update, the crude intake for November 2018 accounted to 3.5 million barrels. Whereas for the full year 2018, the company expects to achieve refinery intake of 40.1 million barrels (MBBLs).

Geelong Refinery, located in Victoria, feeds more than 50% of Victoria’s fuel demand and over 10% of entire Australia’s fuel consumption. The refinery is owned and operated by ASX listed Viva Energy that is positioned to supply approximately a quarter of Australia’s liquid fuel requirements. Geelong manufactures high-quality Shell fuel and lubricants that are supplied to Shell-branded service stations across the nation. Further, the refinery also provides feedstock for the Lyondell Basell polypropylene plant located within the refinery site.

In today’s trading session, Viva Energy traded close to its lowest level of $1.660. Its stock price plunged 6.775% or $0.125 to last trade at $1.720 as at 21 December 2018. Over the past three months, VEA has witnessed a negative performance change of -22.28%, but in the last one month, the stock has shown a marginal upside movement of 0.82%.


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