Refining NZ Operational Update for September/October 2019

HIGHLIGHTS o The Company earned NZD 49.3 million in Processing Fees for September/October. Year to date Processing Fee income is NZD 222.8 million versus NZD 209.5 million for the same period in 2018. o Refinery throughput was 7.25 million barrels which was achieved due to good utilisation by our customers and high refinery availability. o Refining NZ's Gross Refining Margin (GRM) was USD 6.16 per barrel which represents a lower than normal uplift over the Singapore Dubai complex margin. o Global refining margins were mixed in September/October. They were initially supported by the attack on the Saudi Arabian oil facilities and firm Asian demand but were then negatively impacted by the fall in fuel oil cracks without the expected rise in diesel cracks. o The RAP achieved throughput of 3.4 million barrels earning income of NZD 6.1 million, 5% higher than the same period last year. Operational availability on the pipeline was high except for a planned short statutory inspection. o Process and personal safety performance remained excellent: o No Tier 1 or Tier 2 process safety events in the September/October period; and o The lost time injury frequency is currently 0.14 per 200,000 work hours COMMENTARY Refining - Margins and throughput The refinery achieved throughput of 7.25 million barrels due to good utilisation by our customers and high operational availability of 98.6%. This throughput, coupled with a GRM of USD 6.16 per barrel, has earned the Company NZD 49.3 million Processing Fee revenue in the September/October period. Global refining margins Global refining margins rose in September supported by the attack on the Saudi Arabian oil facilities, firm Asian demand and subdued Chinese exports. However, margins weakened in October as a result of the significant decline in high sulphur fuel oil prices ahead of the IMO MARPOL 2020 and rising crude freight rates (see below). Singapore gasoline margins remained healthy throughout the period. Diesel margins were flat but are still forecast by leading international energy consulting companies to increase significantly when marine gasoil demand picks up by year-end (or slightly later) when ships start switching to MARPOL compliant fuels and MARPOL compliant fuel oil inventory is drawn down as expected. Uplift over Singapore Dubai complex margin Refining NZ's September/October uplift over the Singapore Dubai complex margin was USD 2.61 per barrel, lower than normal, due to the impact of low fuel oil margins, flat diesel margins and the building of residue stocks ahead of the 2020 planned turnaround. The Singapore Dubai complex margin for the September/October period was USD 3.55 per barrel. Exchange rate The average exchange rate for the September/October period was USD/NZD 0.63. Looking forward - Impact of temporary spike in crude freight rates As noted above, crude freight rates increased significantly during October and through to mid-November due largely to the US imposed sanctions on several Chinese tanker companies, including COSCO which owns ~6% of the global VLCC fleet. The sanctions came at a time when the available shipping fleet was already reduced with a number of vessels docked for installation of exhaust scrubbers and some being used to store MARPOL compliant fuel oil ahead of January 2020. While there was a surge in all crude oil tanker rates, product tanker rates only increased moderately. Aframax tanker rates, which impact Refining NZ's GRM, increased two and a half fold but product tanker rates only increased by fifty percent. COSCO has since received a temporary waiver from US sanctions and, as at mid-November, freight rates had largely recovered with respect to the impact on Refining NZ's GRM. Nevertheless, the higher freight rates are estimated to impact the cost of crude processed by Refining NZ during November and December in the order of USD -1.00 per barrel as the Refining NZ GRM has a two month lag in the freight rates that are applied. Distribution - Refinery to Auckland Pipeline (RAP) The RAP achieved throughput of 3.4 million barrels of gasoline, jet fuel and diesel which earned income of NZD 6.1 million, 5% higher than the same period last year. Operational availability on the pipeline was high except for a planned short statutory inspection which was completed successfully. The volume of product delivered through the pipeline remained strong and the increased RAP operating pressure delivered greater flow rates as expected. Refining NZ completed piping tie-ins as part of a project to install additional pumping capacity for the RAP which will further enhance the resilience of supply to Auckland. Natural gas Natural gas supplies remained at normal levels in in September/October and Refining NZ was able to obtain all its gas supply requirements at prices around 20% lower than the May/June period peak. Health, safety and environment Our excellent process safety performance continued with no Tier 1 or Tier 2 process safety events in the September/October period. Lost time injury frequency is currently 0.14 per 200,000 work hours. The continued improvement in safety performance is supported through the 7,500 proactive safety observations staff and contractors have logged through our hauora korero (safe talks) and hauora hikoi (safe walks) programs. Costs Overall operating costs have been tightly controlled with the ongoing pressure from higher electricity prices. End CA:00344708 For:NZR Type:MKTUPDTE Time:2019-11-22 08:30:56