Refining nZ

CCR PRojeCt oveRview

2012

CCR PRojeCtContinuous Catalyst RegeneRation PlatfoRmeR PRojeCt

• RefiningNZBoardrecommendsanenergyefficientexpansionproject.

• Projectexpectedtodeliverimprovedreturnstoshareholders.

• Needsshareholderapprovaltogoahead.

• Shareholdershavetheirsayon27April2012attheAnnualMeeting.

if you have a view on the CCR Project then it is important that you express it by voting at the annual meeting 27 april 2012.

Formoreinformationvisit:www.refiningnz.com

more informationAfullexplanationoftheCCRProjectisenclosedwiththenotice of meeting.RefiningNZwillalsobeconductingshareholdermeetingsin:

Whangarei: 16 april 2012 auckland: 17 april 2012 Wellington: 18 april 2012 Christchurch: 19 april 2012

FurtherinformationisavailableontheRefiningNZwebsite:www.refiningnz.com

Orcontact:greg mcneill CommunicationsandExternalAffairsManagerT:094328311E:greg.mcneill@refiningnz.com

investing in growthRefiningNZisalwayslookingforattractiveopportunitiestogrowthebusiness.OurfacilityatMarsdenPointisaworld-classrefinerywithahistoryofinvestmentdatingbackto1964.Theoriginalplanthasbeenexpandedinthemid1980s,in2005and2009–eachexpansionincreasingcapability,reliabilityandaddingtoourvisionof’FuellingNewZealand’sFuture’.

the CCR Project On21Feb2012,amajorityofRefiningNZ’sBoardofDirectorsresolvedtosupportaninvestmentofNZ$365millioninaCCR(ContinuousCatalystRegeneration)Platformertoreplacethecurrent1960ssemiregenerationplatformingunit(the‘CCRProject’)whichwouldotherwiserequireaspendofNZ$105milliontoextenditsoperationallifebeyond2015.

CCRtechnologyisprovenintherefiningsectorandusedaroundtheworld.ItwillenableRefiningNZtoprocessmorecrudeoil,andawiderrangeofcrudes,moreeffectivelyandefficiently.

OuranalysisshowsthattheCCRProjectisprofitable,affordableandcreatesshareholdervalue.Improvedenergyefficiency,yieldsandreducedfuellosseswillenableRefiningNZtogeneratehigher

processingfeerevenues.TheCCRProjectisnotwithoutrisksinavolatilebusinessenvironment;howevermanagementandtheBoardthinkthatitisasustainablepropositionespeciallyassome70%oftheProjectvaluecomesfromsavingsonourbiggestcost,energy(seediagrambelow).

TheCCRProjectwouldalsoenablefurthergrowthopportunitiestobeconsideredatalaterdate.

there will be no call on shareholders for equity to fund the CCR Project.TheCompanyhasbankfacilitiesavailabletofundtheProjectoncompetitiveterms.

shareholders’ decisionTheBoardrecommendsthatshareholderssupporttheCCRProject.ThesizeoftheinvestmentmeansthatshareholderapprovalisrequiredandanordinaryresolutionwillbeputtotheAnnualMeetingon27April2012.InorderfortheCCRProjecttogoaheadatleast50%ofvotescastmustsupporttheProject.

IftheCCRProjectdoesnotgetshareholdersupport,RefiningNZwillneedtospendNZ$105milliontoextendtheoperationallifeoftheexistingsemi-regenerationplatformingunit,bringingnooperationalorfinancialbenefits(theRe-lifeProject).

strategic benefitsOver40percentofNewZealand’stotalenergyneedsaremetbyproductsfromMarsdenPointmakingourrefineryavitalcontributortoNewZealand’senergymix.TheCCRProjectsecuresourabilitytomeetNewZealand’sgrowingdemandforenergy,andcontinuestoimproveourcompetitivenessagainstimports.

TheCCRProjectcontributestoNewZealandbystrengtheningthesecurityoffuelsupplies,reducingenvironmentalimpactandcreatingemploymentinNorthlandandacrossNewZealand.TheCCRProjectrepresentsasignificantsteptowardsachievingourvisionandouraims.

operational benefitsTheCCRProjectallowsafurtherthreemillionbarrelsofcrudetobeprocessedonaverageeachyear(anincreaseofapproximately8%).Wewillbemakingmorepetrolinaworldwheretherewillbesurplusesofpetrol.However,RefiningNZexpectstobeabletoproducearound65%ofthepetrolthatNewZealandneeds,reliablyforourcustomersandcost-competitivelyagainstimports.

Bycontinuouslyregeneratingcatalyst,theCCRPlatformerwillextendthemaintenanceshutdowncyclefrom18monthstosixyears.

Thiswillimprovetheavailabilityofpetrolsuppliesfromourworld-classrefinery.

TheCCRProjectalsohasmajorenvironmentalbenefits.Wewillimproveenergyefficiencyandlowercarbonemissionsperlitreoffuelproducedbyapproximately14%,asavingofaround120,000tonnesofcarbonperyear.ThiswillhelpustomeetourobligationsundertheNegotiatedGreenhouseAgreementwiththeCrown(whichwouldotherwiserequireadditionalinvestment).

financial benefits RefiningNZisastronglycashgeneratingbusinesswitharobustbalancesheet.Overthelasttwoyears,wehavepaidoffthedebtontheNZ$190millionPointForwardProject.Wearenowinapositiontoconsiderthenextgrowthopportunity.

OuranalysisshowsthateveninthemostdifficultbusinessenvironmenttheCCRProjectstillprovidessignificantvalueforourshareholders,customersandotherstakeholders.TheCCRProjectisexpectedtoimproveRefiningNZ’sprofitability:-structurallyincreasingrefiningmarginsby~US$1.10/barrel;increasingannualprocessingfeerevenuebyaroundNZ$70million(in2012dollars)aftercommissioningin2015;increasingannualEBITDAbyaround

NZ$60million(in2012)dollarsaftercommissioningin2015.Industryexpertsandleadingfinancialinvestmenthouse,FirstNZCapitalhavealsoanalysedtheProject.FirstNZCapitalhasconcludedthattheCCRProjectisinthebestinterestsofRefiningNZfromafinancialperspective.

funding ThetotalconstructioncostofNZ$365millionincludesengineering,procurementofmaterialsandequipment,construction,catalystsandothercosts.AroundhalfoftheProjectcostwillbedenominatedinforeigncurrency.RefiningNZhasenteredintohedgingarrangementstopartlyinsulatetheimpactofforeigncurrencyfluctuationsonthetotalProjectcost.TherewillbenocallonshareholdersfornewequitytofundtheProject.

TheProjectwillbefullydebtfundedthroughnewNZ$300millionbankfacilitiesandRefiningNZ’scashflows.

execution RefiningNZhasaproventrackrecordinthesuccessfuldeliveryoflargescaleprojects:externalexpertsratedthe2009PointForwardProject,asaworldclasssuccessintermsofprojectexecution(safety,quality,scheduleandcosts).

ThePointForwardProjecthasprovidedthemodelforanequallysuccessfulCCRProjectwhichwillbenefitfrom:

• Thesamecontractingandprocurementprocesses;

• AnintegratedteamcomprisingRefiningNZmanagement,technicalpersonnelandinternationalengineeringandprocurementexpertise;

• Localsuppliersandcontractorswhohavedemonstratedtheabilityandcommitmenttoprovideexpertise,labour,equipmentandmanagementcapabilitiesonlargescaleprojects;

• TheinvolvementinthedesignandconstructionoftheCCRofseveralkeypartieswithaprovenrecordofdeliveryandlongstandingrelationshipswithRefiningNZ;

• FromahealthandsafetyviewpointtheCCRProjecthaslowerrisksthantheRe-lifeasitdoesnotinvolvemodificationstoarunningplant.

TheDirectorsrecommendationtosupporttheCCRProjectisbasedonthefinancialreturnsexpectedfromtheCCRProjectbeingmateriallyhigherthantheRe-lifeProject.

oveRview CCR PRojeCt

CCR PRojeCt

ouR PuRPose ouR AimsouR visionto be neW Zealand’s suPPlieR of ChoiCe foR oil PRoduCts

a signifiCant steP toWaRds aChieving ouR vision and ouR aims foR shaReholdeRs, CustomeRs and all stakeholdeRs

Please note:ForafullanalysisofassumptionsandrisksunderlyingtheCCRProjectbenefitsrefertothefullExplanatoryNotesat:www.refiningnz.com

*‘TheSocialandEconomicImpactoftheProposedCCRProject’–PeterBruce,DrWarrenHughes,LouvanEs,NorthTec,April2012.**‘TheNewZealandRefiningCompany:OurContribution’–PeterBruce,DrWarrenHughes,LouVanEs,

DavidWilson,DrLoveChile,ClareRotherham,NorthTec,2008.

to gRoW and sustain ouR business foR shaReholdeRs, CustomeRs & stakeholdeRs

fuelling neW Zealand’s futuRe

For every

$1.00 sPent in NZ on the CCR Project

another $1.40 is geneRAted

in sales revenue across the country*

Creation of

~300 jobs

during construction

For every job at the refinery

2 jobs are created in Northland

and another 6 jobs in NZ in specialist

industries**

inCReAse nZ’s self-ReliAnCe

and improve the robustness of critical

oil supplies

imPRovements in energy efficiency & enviRonmentAl

footPRint that support the

country’s strategy on climate change

HelP meet the country’s future

eneRgy needs (where 40% of NZ’s total energy needs

are already supplied ex Refining NZ)

ImPRovE ComPETITIvENEss:

loweRunit inventory

Costs and incremental shipping costs

ImPRovE ComPETITIvENEss:

margin uplift of

~us$ 1.10/bARRel

ENvIRoNmENTal FooTPRINT:

imPRoved eneRgy

effiCienCylower Co2 emissions

inCReAseRefining NZ’s share of the petrol market from

~55% to ~65%

ImPRovE RElIabIlITy:

ReduCed sHutdown fRequenCy

for petrol making plant

inCReAsecrude processing

flexibility

benefits foR CustomeRs

significantly

HigHeR dividends once project debt is substantially repaid

avoids a

~nZ$105million

spend to maintain existing capability

an IRR of over

17%(exceeds WaCC)

a project pay-back of

8 yeARs(net 4 years post commissioning)

NPv or incremental firm value of

~nZ$340million

Higher processing fee revenue of

~nZ$70million

per annum post commissioning

Higher

ebitdA of

~nZ$60million

per annum post commissioning

2012 dollAR

teRms, on AveRAge:

Aims foR sHAReHoldeRs

Deliver 15% return on average capital employed

sustainably over the business cycle.

Aims foR CustomeRsProvide 50-80% of

New Zealand’s products by being the most competitive source of supply in terms

of reliability, cost and environmental footprint.

Aims foR stAkeHoldeRsattract, develop and retain

talented individuals and business partners to sustain and grow the business and be recognised as a valued corporate citizen locally, regionally and nationally.

2012 dollAR

teRms, on AveRAge:

benefits foR sHAReHoldeRs

benefits foR stAkeHoldeRs