The NZX-listed New Zealand Refining Company Limited (NZX:NZR) recently announced its refining simplification plans to extend cash neutral operations at the fee floor into 2021.
Job Cuts and Reduced Oil Production in Q1FY2021
Nearly 90 employees of Refining NZ will be redundant between the first quarter of the financial year 2021 with a majority belonging to the First Union. Apart from the job cut, oil production at the Marsden Point would also be reduced from next year.
NZR currently plans to reduce the oil production from 115,000 barrels per day to ~ 90,000 barrels per day while putting a halt to the bitumen process.
September/October Operational Highlights
The Company disclosed its September/October 2020 operational update recently and suggested that in September 2020, the refinery completed its restart post a six-week shutdown. NZR went on a six-week shutdown to rebalance the stocks across the country, which primarily remained unbalanced for the period as COVID-19 took a toll on the local as well as the global demand.
In the wake of a demand plunge, especially over the jet fuel segment, NZR maintained operations at reduced rates for the quarter. During the period, RAP throughputs remained 16 per cent higher against the previous period, reflecting the lifting of travel restrictions following the imposition of Auckland Coronavirus Level 3 Lockdown.
Refinery Margins Remain Weak on the Global Front
Furthermore, NZR suggested that the refining margins remained weak during the period on the global front, prompting refineries across the globe to reduced runs, implement maintenance plans and temporary or permanent closures.
The Company’s uplift over the Singapore Dubai complex margin (SDCM) was USD 2.79 per barrel with SDCM for the period standing at USD -1.64 a barrel.
Net Debt Reduced by $17 Million
On the financial counter, the processing Fee revenue for the period reached $23.3 million, including $15.8 million of Fee Floor payments. However, GRM for two months was USD 1.15 a barrel over weak global refining margins.
The processing Fee Floor payments reached $86.2 million on a YTD basis (as on 19 November 2020).
However, the net debt for the period declined by $17 million against the last reported net debt of $249 million in August 2020. NZR mentioned that the decline in the net debt position was primarily due to the temporary shutdown of the refinery in July/August and c. $13 million realised from asset sales.
Refining Simplification Plans
Due to the challenging market conditions, NZR is currently seeking refining simplification plans, which would mark ~ 90 employees marking the departure from the Company as it now seeks to save cost and scale back the production capacity.
Furthermore, NZR also plans to use the part of realised funds from asset sales to finance restructuring costs associated with the refinery simplification plans.
On 23 November 2020, New Zealand Refining Company last traded at $0.58, down by 1.69% from its last close.
(NOTE: Currency is reported in NZ Dollar unless stated otherwise)