Refining NZ Operational Update for May/June 2019

HIGHLIGHTS o The Company earned NZD 32.2 million in Processing Fees for May/June. o Refinery throughput of 6.95 million barrels was achieved despite some process unit trips in late May. Excellent hydrocracker performance continued throughout the period. o Refining NZ's Gross Refining Margin (GRM) was USD 4.36 per barrel which, while relatively low, reflected a relatively strong uplift over the Singapore Dubai complex margin. o Global refining margins were weaker in the May/June period as gasoline and naphtha cracks came under pressure. Towards the end of June, refining margins recovered markedly as product cracks rose across the barrel, with gasoline cracks increasing by 35%. This upwards trend has continued into July. o Volumes of products delivered through the Refinery to Auckland pipeline remained strong. o Outstanding process and personal safety performance was achieved: o No Tier 1 or Tier 2 process safety events in the May/June period; and o No recordable or lost time injuries since November 2018. o Overall operating and capital costs have been controlled tightly with the sustained pressure from higher electricity and gas prices. COMMENTARY Refining - Margins and throughput The refinery achieved throughput of 6.95 million barrels as an excellent performance on the hydrocracker continued. This throughput, coupled with a GRM of USD 4.36 per barrel, has earned the Company NZD 32.2 million Processing Fee revenue in the May/June period. The refinery met all customer production plans for the period despite three process unit trips towards the end of May that impacted refinery throughput. The refinery is currently performing well. Global refining margins Global refining margins were weaker in the May/June period as gasoline and naphtha cracks came under pressure. Gasoline cracks saw a sharp pullback from the March/April period as US refiners continued the recovery from unplanned outages and the export of Chinese fuel products increased due to higher export quotas. Asia's naphtha cracks were low due to peak petrochemical plant maintenance and unplanned outages. Towards the end of June refining margins recovered significantly with gasoline cracks increasing 35% as product cracks rose across the barrel. This upward trend has continued into July. Market expert FACTS Global Energy is cautiously optimistic that, barring a severe global economic meltdown, hydrocracking margins should maintain their strength in Q3 and rise in Q4 on the back of a significant boost to diesel cracks from the IMO's MARPOL low sulphur fuel oil regulation due in 2020. Uplift over Singapore Dubai complex margin Refining NZ's May/June uplift over the Singapore Dubai complex margin was strong at USD 4.19 per barrel enabled by a balanced product slate and locational advantage but negatively impacted by the end-May process unit trips. The Singapore Dubai complex margin for the May/June period was USD 0.17 per barrel. Exchange rate The average exchange rate for the May/June period was USD/NZD 0.66. Natural gas Access to natural gas supplies continued to be carefully managed over the May/ June period given the ongoing supply issues with the Pohokura offshore natural gas field. Refining NZ has contracted with a different market participant to build its portfolio of additional gas supply for 2019. We estimate that the higher cost of this marginal supply has had a negative impact on the May/ June GRM of between USD 0.15 to USD 0.20 per barrel. Distribution - Refinery to Auckland Pipeline Operational availability on the pipeline was high and the volume of product delivered through the pipeline remained strong. Health, safety and environment Process and personal safety performance were again outstanding with no Tier 1 or Tier 2 process safety events in the May/June period and no recordable or lost time injuries since November 2018. Refining NZ's programme of Hauora Korero and Hauora Hikoi (Safety Talks and Safety Walks) implemented in 2019 is continuing to lift our safety performance. Costs Overall operating and capital costs have been tightly controlled with the ongoing pressure from higher electricity prices. End CA:00337889 For:NZR Type:MKTUPDTE Time:2019-07-19 12:25:38