Z Energy to withhold payments to Refining NZ amid dispute

Thursday, 17 December 2020

A dispute has broken out between Refining NZ and Z Energy over the Marsden Point oil refinery as talks continue over its long term future.

Refining NZ is now in open dispute with Z Energy as it continues to investigate how it could pull off the staged closure of the Marsden Point oil refinery while staying in business importing pre-refined fuels.

Z Energy is withholding top-up payments on fixed fees it pays to keep the Marsden refinery running.

Refining NZ told the NZX that Z had lodged an objection to a shorter-term plan announced by the refinery in October to save $20 million next year by simplifying its operations and axing about 100 jobs.

Z Energy chief executive Mike Bennetts advised investors that it would not make any more “top up” fee floor payments to Refining NZ as its simplification programme meant customers such as Z did not have “access to the full capacity of the refinery”.

Z Energy said in November that it wanted Refining NZ to stop refining and become a distributor of imported pre-refined fuels.

* Refining NZ sends out further signals Marsden Point oil refinery may close

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”Additionally, Z will claim for costs incurred while the refinery is in breach of the processing agreement,” Bennetts said.

Z has already made $19m of fee floor payments to Refining NZ this year.

The payments are designed to ensure the refinery has enough income to sustain itself during periods of low demand for its fuels.

The dispute has broken out as a broader discussion between Refining NZ and its petrol company customers continues.

Refining NZ is considering a much more radical cost-cutting plan that would it see it close the refinery and import pre-refined fuels, which it would continue to pump through its pipeline linking Marsden Point with Auckland.

The First Union has estimated at least 1000 jobs would be lost in Northland if Refining NZ was to switch to an import model.

Union organiser Justin Wallace has estimated that about two-thirds of the 400 staff and 250 contractors employed at the refinery complex itself would lose their jobs.

Z Energy made clear in its interim report in November that it did want Refining NZ to close its refinery and to switch to importing refined fuels.

The outlook for refining margins remained poor, “particularly for a very small, geographically isolated refinery”, it said.

”Z is of the clear view that Refining NZ’s future is as an import terminal and distribution hub for refined fuels rather than as a refiner of crude oil.”

Z’s move to withhold fee floor payments would hit Refining NZ’s finances prior to that possible restructure occurring.

Although 42 per cent of Refining NZ is owned by Z, BP and Mobil, the majority of the company is owned by independent investors.

Mobil also has a dispute with Refining NZ which it had put on hold while discussions continue over the shape of the refinery.

Refining NZ indicated in its statement to the NZX that it had made good progress in discussions with customers other than Z in relation to “the potential future staged transition to an import terminal”.

“Refining NZ expects to provide an update to the market in January regarding its work to further develop and refine import terminal conversion plans, including estimated costs of conversion and timing and the status of ongoing customer discussions,” it said.