‘Big if’ on subsidy package for Ampol’s refinery

Ampol chairman Steven Gregg has told shareholders that it is still “a big if” whether the company can reach a deal on a support package that will keep its sole remaining oil refinery in operation, with a decision anticipated within two weeks.

Two days after a federal budget that provided for a subsidy package for the struggling sector but with no detail on numbers, Mr Gregg signalled there was still considerable doubt whether the government’s fuel security measures would be enough to prevent the closure of the Lytton refinery in Brisbane.

Australia’s refineries were hammered by the impact of the COVID-19 pandemic last year, which decimated demand for jet fuel, and cut the use of petrol and diesel, while also driving down refining margins.

Two of the four refineries operating pre-COVID-19 have since closed or are in the process of closing because of heavy losses across the sector last year. Only the continued operation so far of Lytton and Viva Energy’s Geelong plant is preventing Australia being totally dependent on imports for petrol, diesel and jet fuel.

Chief executive Matt Halliday signalled Ampol needs to see the final details of the government’s support package to complete the formal review of the Lytton plant’s future, which is due by the end of June. The decision will be based on maximising value for shareholders, he said.

“Understanding government support available is one of the final outstanding items to address prior to the conclusion of our review,” Mr Halliday said.

Analysts say the final “production payment” to be included in the package, which is due to come into effect on July 1, will need to be bigger than the 1¢ a litre interim subsidy offered by the government in late 2020 to save Lytton.

Ampol did not accept the interim subsidy as it completed the formal review of the refinery, although Viva accepted it eagerly for its Geelong plant, which was also under threat of closure.

Speaking to journalists after the meeting, Mr Halliday would not comment on the sticking points to a deal, but described the conversation with government as “constructive”.

The fuel security package also includes minimum requirements for importers to hold stockpiles of diesel in Australia, which could also benefit refiners that are able to hold reserves for third parties.

Mr Gregg indicated the measures will need to help smooth the volatility in earnings that the Lytton plant has seen historically, with the plant sometimes suffering a heavy loss – as in 2020 – and other years robust profits, depending on Asian refining margins outside the company’s control.

“We have been in contact with the government which is keen that we consider keeping Lytton open: fuel security is very important for them as is employment and we recognise that,” he told shareholders.

“We need to take into account all of that and in the context of what has been a very volatile earnings stream from Lytton over many years.

“If – and it’s a big if – we can come to an arrangement with the government on a support package that gives us the chance to reduce the volatility of Lytton, provide more certainty of earnings and therefore more certainty of employment and fuel security, then we’ll look favourably upon that, but that has yet to be concluded.

“When it is we will come back to the market with an answer; that should be within the next one of two weeks.”

Shares in Ampol, which is also due to announce a decarbonisation strategy later this month, were down 0.4 per cent at $25.97 in early afternoon trading.

A spokesman for federal Energy Minister Angus Taylor said the final details of the package for fuel security, which was flagged in the budget, are being finalised with the refining sector.

“The government has worked closely with the fuel industry on the design of the package to secure our stocks, protect motorists from future high prices, and values the fuel security services Australian refineries provide,” the spokesman said.

“The government remains committed to having the long-term production payment commence from July 1, 2021.”

Meanwhile, Mr Halliday voiced support for how the government is balancing the need for economic recovery and managing the effects of the pandemic, despite the impact the border closure is having on demand for jet fuel.

But he said the vaccine rollout was “critical” to ensure an opening-up of borders and a gradual expansion of the travel bubble system.

“That is important for continuing to restore access to the right skills over time and also to ensure that the economy can continue to grow beyond the strong recovery that we are seeing at the moment,” he said.

Extracted from AFR

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