Ampol shares up as refinery claws back to break even

Ampol’s stock jumped 5 per cent to $25.8 after the company reported its oil refinery in Brisbane has clawed back to break-even territory in the March quarter, offering hope the petrol and diesel supplier will keep it running when it concludes its review into the struggling plant.

The Lytton refinery yielded zero earnings in the first three months of 2021, an improvement from the $18 million loss before interest and tax of the same quarter a year earlier, and from the $4 million loss in the December quarter.

The ageing plant, which has been hit hard by the effects of the COVID-19 pandemic on fuel demand and refining margins, lost $145 million for Ampol in the full 2020 year.

Net profit for the whole Ampol business excluding one-off items improved to $86 million in the March quarter, up from $80 million in the first quarter last year which felt the effects of the beginning of the COVID-19 lockdown.

Chief executive Matt Halliday said Ampol, which rebranded from Caltex Australia last year, continued to execute its growth strategy for both the fuels and infrastructure business and convenience retailing during the quarter.

Earnings before interest and tax (EBIT) of fuels and infrastructure rose 11 per cent from a year earlier, while convenience retailing EBIT edged up 3 per cent on the December quarter but dipped from the same quarter of 2020.

“Lytton EBIT was break-even in 1Q 2021, with ongoing weakness in regional refining margins,” Mr Halliday said.

“We remain on schedule to conclude and communicate the outcomes from the Lytton refining review in 2Q 2021 and are focused on maximising value for shareholders from this strategic asset.”

RBC analyst Gordon Ramsay noted that Ampol beat RBC earnings expectations by 27 per cent, thanks to better than anticipated convenience store sales and expects the Lytton refinery will be transformed into an import terminal.

“Ampol’s Lytton refinery and Viva Energy’s Geelong refinery are the last two refineries in operation domestically, and we think there is a strong likelihood of conversion of Lytton into an import terminal. We think this would provide multiple expansion underpinned by a more predictable earnings base,” he wrote in a note to investors.

Ampol, unlike rival Viva Energy, has not accepted the federal government’s interim support subsidy for its refinery as it examines whether the plant will continue running, or be closed down and converted into an import terminal.

The Morrison government is understood to be close to finalising the terms of an ongoing subsidy package for domestic refiners, which is due to come into effect on July 1. It is expected to involve a bigger subsidy than the interim 1¢ a litre, to try to prevent further closures.

Lockdown impacts

In the meantime, the owners of the country’s other two oil refiners, BP and ExxonMobil, have already decided to close their plants, in Kwinana, Western Australia, and Altona, Victoria, respectively.

The improvement in profitability at Lytton, together with the potential for a bigger subsidy from the government to preserve domestic refining and help with security of fuel supply, may be enough to keep the plant in operation, some analysts have suggested.

Ampol said the refining margin for the Lytton operation was $US5.48 a barrel in the March quarter, slightly up on the $US5.13 a barrel of the December 2020 quarter. Production was 1.42 billion litres, up from 1.37 billion litres the prior quarter. The company retained full-year guidance for production from Lytton of about 6 billion litres.

But total Australian fuel volumes slid 5 per cent in the March quarter from the last quarter of 2020 because of lockdowns in Brisbane, Perth, Melbourne and parts of Sydney, as well as flooding in NSW and Queensland, Ampol said.

It still retained its guidance of sales volumes of between 13.5 billion and 14 billion litres for 2021, on the expectation of a further recovery in fuel demand, noting that the run-rate in March was in line with that guidance range.

But volumes of jet fuel sales were down 53 per cent in the March quarter compared with a year earlier, and 16 per cent down on the December quarter. The temporary reinstatement of travel restrictions reduced volumes of petrol demand, which were 21 per cent lower than in the March quarter of 2020, while diesel was down 8 per cent.

Ampol’s convenience retailing fuel volumes were 7 per cent lower than in the March quarter last year, but shop performance was “strong”, with like-for-like sales up about 10 per cent.

Ampol said customers are responding “positively” to the rebranding of sites from Caltex, with 109 sites renamed by the end of March and sales volumes “in line with the surrounding network”.

Extracted from AFR

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