THE AUSTRALIAN | MAY 3, 2016 12:00AM | Matt Chambers
The new owner of Shell’s petrol station network and Geelong refinery, Viva Energy, is bracing for tough industry conditions following a strong debut in 2015, when refining margins bolstered profits for it and locally listed rival Caltex.
But Viva’s chief executive, Scott Wyatt, says an ASX petrol station real estate spin-off is still on the agenda, as is retail expansion, after he added 50 Shell-branded sites in the past year.
Viva, controlled by Dutch trading giant Vitol and part-owned by Abu Dhabi, paid $3 billion for Shell’s Geelong refinery, its Australian wholesale and retail fuel business and local branding rights in August 2014.
Accounts lodged with ASIC report 2015 net profit after tax of $159.8 million in Viva’s first full year of operation, turning around an underlying loss for the final quarter of 2014.
“We’re pretty pleased with the results last year, they reflect a relatively good refining environment, with robust refining margins, and a lower Australian dollar helps,” Mr Wyatt, who ran the Shell fuel business before the sale, told The Australian. “We also had one of our better years for reliability at Geelong, which meant we were able to take advantage of those good global factors and we really progressed our growth program,” he said.
Viva actually made a similar net profit in the fourth quarter of 2014, but this was bolstered by a $304m accounting “gain on bargain purchase” for the Shell asset purchase, which turned around its underlying loss.
The good 2015 refining environment, which was helped by a slide in oil prices, has not continued.
“This year is a more difficult one for refining — margins have come off, the exchange rate is strengthening, so the refining environment is less favourable,” Mr Wyatt said.
The end of high refining margins is illustrated by the performance of Caltex shares, which are down 14 per cent so far this year after being the second-best performing top-20 company of 2015, with a 74 per cent gain.
The return towards conditions like those that have seen BP, Caltex and Shell close refineries in recent years is not changing the plans for Geelong, where Mr Wyatt is sticking with previous plans to invest about $300m from 2015 to 2019.
“Refining is a cyclical business and our focus has been to invest to improve production, performance and productivity at the site so that we can withstand the downturns,” he said.
Viva’s plan to spin off about 400 petrol stations in a $2 billion real estate investment trust — known internally as Project Veyron — is the subject of legal action by Shell’s (and now Viva’s) long-time petrol station partner Coles.
Coles is now appealing against a November Supreme Court ruling that the trust could go ahead.
Project Veyron — named after the world’s second-fastest production car — is still being pursued.
“We continue to look at it closely,” Mr Wyatt said.
“The logic is we have a little over 400 freehold sites in our business and we have an opportunity to have a slightly different investor base in that business. Also for us, it will potentially provide a platform for growing our network.”
Still, Mr Wyatt said Viva was in no rush to push forward and would wait until the right time.
At Viva, it is not just refining where things are tougher.
“In the marketplace, it’s also a more challenging environment than it was last year,” he said.
“You can see a lot of our customers are having difficult times, particularly in the resource sector, so that impacts how much fuel they use and focuses them on how they can reduce their supply costs.”
On the retail side, competition remains strong and demand remains flat.
“The opportunities we’ve seen are about growing our network and filling gaps so we have sites where we haven’t been in the past,” Mr Wyatt said.
Viva has added about 50 Shell-branded petrol stations (including about 30 of those with Coles Express) giving it 925 service stations across the country. Of those, 688 are Coles branded.
Last week, Coles’s parent Wesfarmers said March quarter comparable fuel volumes fell 10 per cent, year-on-year.
“During the quarter, there was an increased focus by competitors on their fuel offer in order to drive footfall into stores,” Wesfarmers said of the fall.
Viva is sticking to its plans to spend about $1bn over its first five years. That will be in roughly equal parts on refining, its supply chain and retail expansion.
Showing it is on track, $243m was invested last year.
At Geelong, investment has included a $50m crude oil storage expansion and the expansion of a pipeline to Melbourne that will cut costs by eliminating the need to ship fuel.