Australia’s two oil refiners have swung back to profit as both Viva Energy and Ampol posted multi-year high revenues, capping a remarkable turnaround for a sector that was the subject of a federal government subsidy package to secure fuel supplies.
The federal government last May said it would pay Ampol and Viva Energy to keep producing amid heightened fears about Australia’s energy security as both companies struggled against larger Asian refineries and COVID-19 lockdowns.
The scheme pays both Ampol and Viva Energy when refining margins are weak, and the subsidies aided both in the short term before a rapid turnaround in the market made both ineligible.
With soaring demand, both Ampol and Viva Energy on Monday reported bumper profits.
Ampol said it swung to a $560 million net profit from the year-earlier loss of $485 million; it declared a 41¢ dividend.
Viva Energy, meanwhile, said its net profit for the 2021 financial year rose to $191.6 million, up from the $33.4 million the company reported one-year earlier. The results were the largest since the company’s 2018 float.
The refining businesses were the best performing for both Ampol and Viva, and the two separately said they expect the strong performance to continue throughout the year as demand for oil grows post COVID-19 lockdowns.
“There is a good recovery in the oil market as markets reopen, and it feels they are reopening permanently as well,” Viva CEO Scott Wyatt told The Australian Financial Review.
“There is a commitment from governments around the world to live with COVID, and that will support oil.”
Omicron dent
Although Ampol’s refining business enjoyed a bumper year, its retail petrol and shop segments recorded annual falls of more than 10 per cent as lockdowns in Victoria and NSW limited mobility.
Ampol said both areas of the business rebounded strongly in December, but analysts noted a fall one month later.
Mr Halliday said January was a short-term blip amid a surge of omicron cases, and more recent data showed mobility had increased.
“When market conditions normalise, all parts of our business respond pretty strongly,” Mr Halliday said in an interview.
“It was a short-term blip, but we can see volumes in February recovering strongly as people begin getting out again. There was a quasi lockdown in January as case numbers peaked.”
New opportunities
Buoyed by the subsidy package that puts a floor under their earnings, Viva and Ampol are targeting new earnings growth – though both insist the traditional businesses of petrol stations and in fuel wholesaling have a long way still to run.
Viva is expected to make a final investment decision in the September quarter on its plan to convert Geelong into an energy “hub”, including an LNG import terminal that stands as Victoria’s leading prospect for gas imports after the collapse of AGL Energy’s Crib Point project.
Viva could move into gas wholesaling and retailing, gas-fired power generation and gas storage once the terminal is up and running in the mid-2020s, while it would take some imported LNG for its own use. A potential solar farm at Geelong could supply up to 10 per cent of the hub’s requirements.
Mr Wyatt said the decision on the project would be determined by regulatory approvals and supply contracts.
“The case for the project just continues to build. The rapid decline in the Bass Strait production is just not being replaced, and we have an opportunity to fill that gas shortage,” said Mr Wyatt.
Ampol meanwhile expects to complete the $NZ1.97 billion ($1.8 billion) takeover of Z Energy in the first half of the 2022 financial year.
Ampol will use its trading arm to help supply the New Zealand market, where the lone refinery is set to be converted into a fuel import terminal.
Extracted from AFR