Viva Energy, a prominent Australian fuel company, is confronting increased operational and freight expenses due to setbacks associated with extended repairs at its primary refinery in Victoria.
The Geelong-based refinery’s operations are gradually restarting following an incident where a crane accidentally released equipment amid scheduled maintenance, delaying the original completion deadline from June to September.
Playing a critical role in the country’s energy supply, Viva is responsible for providing approximately one-fourth of all liquid fossil fuels in Australia. The company’s reach extends beyond the Geelong refinery, including ownership of various enterprises spanning from bulk fuels and aviation to chemicals and lubricants, operating across over 20 terminals and 60 airports nationwide.
According to Gordon Ramsay of RBC Capital Markets, the revival of the Geelong refinery’s full production capabilities is more protracted than initially projected by industry experts and the market. This delay perpetuates the strain of escalated costs for both operations and shipping for Viva. As revealed in preliminary financial reports to the ASX, these ongoing issues at the Victorian refinery will likely result in a $20 million downturn in Viva’s pre-tax earnings for its energy and infrastructure segment.
Mr Ramsay anticipates a resurgence in earnings once the Geelong site reaches its maximum production capacity, projected for the fourth quarter of 2023. However, the refining margin experienced a 35% dip to $US8.50 per barrel due to a surge in oil prices, even though the refinery’s production hasn’t fully ramped up.
Viva acknowledged in its recent stock market announcement that the initial turbulence in oil prices has now reached a more stable state, contributing positively to the rebound of retail fuel margins. This stabilisation comes as cities like Sydney, Melbourne, and Adelaide witness unprecedented average pump prices, with Brent crude oil inching towards $US100 per barrel.
Rapid fluctuations in oil prices earlier in the quarter had compressed retail fuel margins. However, a newfound equilibrium in prices has restored retail profitability for both gasoline and diesel as of October, as noted by Mr Ramsay.
While fuel sales via Viva’s convenience outlets slightly missed RBC’s expectations, they aligned with results from 2023’s second quarter. There was a notable 8.2% annual increase in the volumes of commercial and industrial fuel sales. Overall, the group’s fuel sales maintained consistency with the figures from the previous quarter and marked a 4.7% annual growth, Mr Ramsay elaborated.
Viva’s stock value fell by 2.85%, closing at $2.73 as of Monday.
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