Geelong set to jump aboard for gas future: Viva
Viva Energy chairman Robert Hill has told shareholders the plan to redevelop the Geelong refinery site into a hub for lower-carbon energy supply – starting with natural gas – will help both secure the future of the site and protect profits against volatile refining margins that are outside its control.
At the same time, Viva is angling to participate in the federal government initiative to create strategic storage reserves and is offering the loss-making Geelong site as an ideal location for the storage.
“We have moved to build resilience into the refining business and in support of the Geelong assets more generally,” Mr Hill, a former federal environment minister, told the annual shareholder meeting, which was held entirely online because of COVID-19.
“The encouragement that we are now receiving from government that it has realised the importance of that sector to its strategic interests and their engagement with us on strategic projects gives us further reason for confidence,”
Viva, along with Australia’s three remaining refineries – Ampol, BP and ExxonMobil – are all expected to participate in the Morrison government’s request for information on potential storage options for crude and refined fuels, which closes on Friday. The government is due to announce its next step on the storage strategy late this year, and is also reviewing the refining sector more broadly to try to secure the domestic industry’s future.
The plan to create an “energy hub” at Geelong, which was announced to investors last month, helps ease uncertainty around the future of the refinery itself. It would involve initially developing an LNG import terminal at Geelong to support the supply of gas as a “transition fuel” to support renewables as coal power declines. Gas-fired power generation, solar power, batteries and hydrogen could also be added at the site.
Chief executive Scott Wyatt confirmed Viva had invited expressions of interest from potential partners in the LNG import project, which some commentators say could face fewer environmental and social licence hurdles than AGL Energy’s rival Crib Point project in Victoria’s Western Port.
Mr Wyatt said Geelong was also a “natural location” to support the government’s plans to set up crude oil and fuels storage. Viva built a new 25 million litre petrol tank at the site last year.
The confirmation of Viva’s long-term plans for Geelong comes as Viva advised that all the units at its refinery at the site would be “available for operation” again by November after an extended maintenance shutdown that starts this month.
Both Viva and Ampol have extended the periods their respective refineries will be closed to cut costs amid weak refining margins and particularly soft demand during the COVID-19 crisis. The adjustments will also help meet physical distancing rules.
The lengthened shutdowns have raised fears that the refineries won’t be reopened, although the move by the federal government to potentially support the sector has helped ease those worries. Viva shut down surplus processing units at Geelong at the end of April.
Viva, the former Shell refining and marketing business, also reported a further lift in petrol and diesel sales in June through its alliance with Coles Express from the 45 million litres a week average in May, which was up from below 40 million litres a week in April.
Jet fuel sales slumped by 73 per cent as border restrictions were imposed after the outbreak of COVID-19, but diesel sales remained “particularly robust” throughout, Mr Wyatt said.
Shares in Viva, which were sold at $2.50 apiece in the IPO two years ago and slid below $1.20 during the worst of the pandemic in late March and early April, closed down 2.2 per cent at $1.755.
Grilled by a dissatisfied shareholder about the lower profits since the IPO, Mr Hill admitted the 2019 profits, where underlying gross profit dropped 17 per cent, were “disappointing”. But he said Viva was “confident in the changes we have made and the potential for the business in future”, citing the Geelong plan and the restructuring of the Coles alliance, as well as improving sales volumes and margins.
Mr Hill said Viva’s unaudited first half-results, which show gross profits only modestly down from a year earlier, should give shareholders confidence in the steps taken.
Viva reiterated guidance that underlying earnings before interest, tax, depreciation and amortisation for this June half would be between $257.5 million and $287.5 million, compared with $297.4 million a year earlier.
Mr Hill also confirmed the delayed start of a buyback in June by Viva to return the proceeds of the sale of its stake in a retail property trust.
Separately, the national competition regulator reported that the slump in demand and surplus global oil supply saw petrol prices drop to their lowest in April since records began in May 1991. It said seven-day rolling average prices fell below $1 a litre on April 23 for the first time since March 2005 and hit a low of 92.4¢ per litre six days later.