WELLINGTON: Refining NZ has reached a key milestone in the transition to a fuel import terminal as part of its strategic vision to be New Zealand’s leading fuel infrastructure company.

Naomi James, CEO, said “Today is a momentous day in the journey to transition our business from operating as a refinery to an import-only fuel terminal.

After 60-years of operations as New Zealand’s only oil refinery, we look back on the past with pride and look to the future with confidence that our business will continue to contribute to our community, and New Zealand, long into the future.”

Long-term customer agreements executed

The Company has entered into long-term agreements with its three existing customers (bp, Mobil, Z Energy) for the provision of import terminal services, consistent with the terms described in the Explanatory Booklet and approved by shareholders. All customers and Refining NZ have agreed to withdraw existing dispute notices under the Processing Agreements with effect from the commencement of import terminal services under the terms of the Terminal Services Agreements.

On the basis of the shareholders’ approval received in August, the Board has now made the Final Investment Decision (FID) to proceed with the conversion and a name change to Channel Infrastructure NZ Limited (NZX:CHI) (Channel Infrastructure) to align with the commencement of import terminal operations from April 2022.

The Company’s Chairman, Simon Allen, said “We are pleased to reach this key milestone. I want to thank all of those who have been involved with reaching this point and delivering a clear path forward for our Company.

At the same time, our dedicated workforce have continued to work hard every single day to ensure the safe operation of the refinery – made more difficult by the ongoing COVID disruptions – and I pay tribute to their commitment.”

Naomi James added, “I want to acknowledge the professionalism and dedication of our whole team over the past 18-months throughout the strategic review, refinery simplification, lockdowns and preparations for conversion – the team have continued to quickly adapt to overcome these challenges while ensuring that we can safely supply New Zealand with its fuel needs.

“As we look to our future as Channel Infrastructure, a key focus for me is supporting our people and readying them for this change. I know that we have some of the best talent in the region working on our site, who will continue to play a critical role in the ongoing operation of our refinery over the coming months.

I am committed to supporting them through this time to find new employment or training opportunities, to be ready to transition to new roles once the refinery is safely shutdown. This includes working with other businesses to skills-match our people with their vacancies.”

Agreements to provide private storage services

The Company is also pleased to announce it has executed long-term agreements with customers to provide dedicated private storage, with further agreements expected.

As described in the Explanatory Booklet, the Company has identified private storage as a complementary growth opportunity which provides customers with increased product supply scale and flexibility.

An initial capital commitment of c.$30 million is expected to result in incremental revenue of c.$50 million (real) on a fixed rental basis over a 10 year term, with high EBITDA conversion. This capacity will be progresively made available following required works from the commencement of terminal operations through to early 2023.

Management is also actively engaged with customers on additional private storage opportunities, as well as developing funding plans for private storage. This additional demand could require further capital investment of up to c.$25 million and deliver additional revenue of up to c.$60 million (real) over a 10-year term.

Naomi James said, “Outside of these opportunities, our team is continuing to monitor the development of the Government’s policy on domestic fuel stockholding requirements. Given our ability to provide strategic storage with our existing tankage and proximity to the Auckland market we are ready to engage with our customers and the Government to support the implementation of any confirmed policy.”

Estimated financial impacts of conversion

The Company confirms that the refinery is expected to run cash neutral to closure.

In the appendix to this announcement, we set out information regarding certain elements of the estimated financial impacts of the conversion on the Company, including in 2023 being the first full year of import terminal operations.

The Company will provide a quarterly update on the conversion project through 2022, replacing the bi-monthly operating report which will cease from the end of 2021.

NNR