Petrol and diesel supplier Viva Energy has reported a dive in sales of up to 40 per cent at its Alliance petrol stations with Coles due to COVID-19 restrictions and is reviewing planned maintenance work at its refinery in Geelong after a slump in refining margins.
Viva, which owns the former Shell refinery and petrol station network, will also delay a planned share buyback and has slashed its capital spending for this year by half, excluding the refinery maintenance, in a bid to preserve cash and reduce infection risks. It had flagged a view to capex budgets last month.
Capital spending this year is now put at $60 million-$80 million, down from $140 million-$160 million, while the refinery maintenance is shrouded in uncertainty, subject to a review to be completed by the end of June.
Viva said that changes to the scope and timing of the maintenance, which is currently scheduled from late August through to October, would be required to manage COVID-19 risks.
“We will also closely monitor the longer-term refining margin outlook which continues to evolve,” it said.
The refining margin at Geelong was just $US2.70 a barrel in the March quarter, down from $US4.90 a year earlier, suggesting the refinery is struggling to break even. Viva’s rival Caltex Australia already last week advised it would bring forward and extend planned maintenance work at its Lytton refinery in Brisbane due to low margins and the COVID-19 rules that impact working arrangements at the site.
Viva’s announcement suggests that a second of Australia’s four remaining refineries may be subject to an extended shutdown as fuels suppliers around the world struggle with slumping demand and low margins. Consultancy Rystad Energy this week noted a 30-40 per cent drop in road traffic in Australia compared to normal levels as the COVID-19 restrictions on mobility kick in, and highlighted major problems for refineries with a lack of storage for jet fuel after demand nosedived.
Shares in Viva were up 3.5 per cent at $1.325 shortly before the close.
At the Alliance petrol stations, March quarter sales rose 5.1 per cent from a year earlier to 62.4 million litres a week on average, while retail fuel margins were “favourable”, Viva said. But since late March, the restrictions introduced by federal and state governments to try to stop the spread of COVID-19 “have resulted in Alliance sales volumes declining by approximately 30 to 40 per cent,” it said.
Viva’s commercial sales volumes in the first quarter were in line with last year apart from declines in aviation sales volumes towards the end of March. Viva reiterated it expects aviation fuel demand to dive by 80-90 per cent due to the travel restrictions in place.
The company had already advised it would delay an off-market buyback of shares, but said on Thursday it would also delay an on-market buyback to allow it to “monitor the longer-term impacts of COVID-19”. The buybacks were intended to return to shareholders all the $680 million proceeds from the sale of Viva’s stake in a retail property trust.
Extracted from AFR