18
Jan

Ampol’s refinery business to post spike in earnings as margins soar

Ampol’s refinery operations will post its biggest quarterly revenues in four years, the company said, as strong demand pushes fuel prices so high that the petroleum company will not receive any federal government subsidies.

Ampol said the average margin at its Lytton refinery in Brisbane in the final quarter of 2021 totalled $US11.24 per barrel, significantly higher than the third quarter margin of $US6.76 per barrel.

The Lytton refinery produced 1585 millilitres (ML) of oil, up from 1565 ML in the third quarter of the year, Ampol said.

The average margins are so high, Ampol said it does not expect to receive any government subsidies – introduced last year that that sees Ampol and Viva Energy paid when refining margins are weak. The subsidies will remain in plan until 2027, with an option to extend to 2030.

Ampol had considered closing the refinery, which employs more than 550 people, before the introduction of the government subsidies.

The subsidies were introduced to keep domestic oil refineries open and protect Australia’s fuel security, as Australia’s ageing refineries find it difficult to compete with much bigger, new refineries across Asia. The country’s two other refiners – BP and ExxonMobil Corp – are shutting their plants this year.

Ampol will post its 2021 financial results later next month and the company said the substantial rise in processing margins will see its refinery business report earnings at a four-year-high.

“The Lytton Refinery is expected to deliver the highest RCOP EBIT quarterly result for more than four years, reflecting the substantial operating leverage to improved refiner margins,” Ampol said.

Shares in Ampol rose nearly 2 per cent to hit a 10-week-high following the earnings update.

Ampol reported third quarter refinery earnings before interest and tax of $22 million in the July-September period when average margins were $US6.76 a barrel. The refinery contributed more than half of Ampol’s third quarter profit.

The turn around in margins has aided Ampol, which sunk to a heavy loss of $82 million in the third quarter of 2020 during the depths of the COVID-19 lockdowns.

Improved margins have also aided Viva Energy, which reported a near doubling of its annual earnings in December as it too said it would not receive any government subsidies.

Viva called on the subsidies for the Geelong plant in the September quarter, but Ampol did not need them for Lytton.

In addition, Viva and Ampol will receive up to $125 million to upgrade their refineries to produce ultra-low sulphur petrol by end-2024.

In exchange, Australia fuel industry will be required to hold minimum stocks of 24 days of petrol and jet demand and 20 days of diesel demand from July 2022, with a 40 per cent increase in diesel holdings required from July 2024.

With additional requirements, Viva has contracted Brockman Engineering to build three 30 megalitre diesel storage tanks at its Geelong refinery.

The contract is worth $40 million, Brockman said.

Meanwhile, preliminary work on the largest fuel storage facility in the Northern Territory has also begun.

Chief minister Michael Gunner said the tank capable of storing 300 million litres of fuel will support US military personnel in the territory.

The project is expected to cost the United States $270 million.

 

Extracted from AFR