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NZ Refining Co announces strong half-year result

Media Release
21 August 2008

New Zealand Refining Company announces strong half-year result

The New Zealand Refining Company Limited today announced an interim net profit after tax of NZ$54 million for the six month period ended 30 June 2008.

Record refinery margins, world class reliability and high plant utilisation combined to generate revenues of NZ$183m, up 13.4 per cent on the previous corresponding period. However, the interim profit was down 9.8 per cent from $59.8m in the previous half-year, largely because of a NZ$8.6m increase in electricity costs, despite hedging.

The Northland-based Company, which processes close to 80 per cent of New Zealand’s transport fuels, also expects conditions to be tougher in the second half of the year as worldwide demand for fuels slows and more refining capacity comes on stream.

The Refinery processed 19.6 million barrels over the first six months of its financial year at an average Gross Refining Margin1 of US$13.53 per barrel.

New Zealand Refining Company Chairman, David Jackson, said the Company’s continued strong financial performance, the safe and reliable operations of the refinery and a significant expansion project which is now underway give the Board confidence for the future.

“The half year result reflects an excellent all round performance by the Company. The business environment has been very healthy and we are capitalising on record Refining Margins through our high reliability which gives our customers confidence and keeps the plant running to full capacity,” said Mr. Jackson.

During the six month period ended 30 June 2008, the Company has accumulated a “margin buffer” of approximately US$88 million, which arises from the refining margin in excess of US$9.00 per barrel. This “buffer” will allow the Company to top up margins that drop below US$9.00 per barrel for the rest of the financial year.

“The buffer that has been accumulated ensures that margins would have to fall below an average of US$3.00 per barrel for the balance of the year before processing fees are impacted. This puts us in a strong position for the second half of the year, while throughput and the US exchange rate are the other variables that will influence the full-year result,” Mr. Jackson said.

The Directors have declared an Interim Dividend of 15 cents per share, with full imputation credits. The record date is 18 September 2008 with the dividend being paid on 25 September 2008.

Mr. Jackson added that, “the increase in interim dividend should not be interpolated into the final dividend amount. Rather, it should be seen as a reflection of the results to date, the rebalancing of the interim dividend as a proportion of total dividends, and to maximise the benefit of available imputation credits.”

New Zealand Refining Company CEO, Ken Rivers said good progress was being made on the Point Forward Project (PFP), a $180m expansion that will increase processing capacity by 20 per cent.

“The expansion project is moving from the engineering design and procurement phases into construction, with the first significant pieces of equipment now on site. Despite some delays which have resulted in the deferral of the planned shutdown for refinery maintenance and PFP construction, the project will still be completed in 2009. The deferral of the shutdown, however, means that we now have two major shutdowns to be executed in 2009. The combined effect of these two shutdowns will reduce refinery capacity in 2009 by approximately 5%.”

Mr. Rivers said an important highlight of the year to date was the Company’s safety record which is reflective of the employees’ commitment to developing a safety culture.

“The company achieved 1 million hours without a lost time incident in May and is currently over a half million hours without a recordable injury. This is best practice by New Zealand standards and keeps us on track toward achieving world-class performance in this area.”


Notes to editors
1. The processing agreements were established in 1995. The agreements cover all aspects of processing and include the formula which the Company uses to charge its customers. The processing fee charged is 70% of the Gross Refinery Margin generated from import parity pricing of the customers’ crude oil processed at the refinery and the resulting import parity valuation of the products produced. The pricing structure also contains a “floor” or minimum payment should processing fees drop below approximately NZ$NZ100.00 per year and a gross margin cap of USD$9.00 per barrel per year which limits the amount of processing fee charged per barrel.

About New Zealand Refining Company Ltd
• New Zealand’s only oil refinery and the leading supplier of refined petroleum products to the New Zealand market, including petrol, diesel, aviation fuel, bitumen and other products.
• Processes between 75 and 80 per cent of all transport fuels used in New Zealand.
• Almost half of its fuel production travels via a purpose-built 170-kilometre pipeline to Wiri in South Auckland, the rest travels by coastal tanker.
• Located on Marsden Point, it is one of Northland’s largest economic contributors with around 340 staff and a further 250 contractors.
• Ranked second on Boston Consulting Group's July 2008 list of New Zealand's 15 largest listed companies that were the fastest value-creators for shareholders over the last five years.

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