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:[email protected]
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