A heavy loss at its only refinery saw Ampol suffer a 38 per cent dive in benchmark profit as the petrol and diesel supplier continues a review of the plant in Brisbane that will decide whether it will remain in operation or join two other refineries already slated for closure.

Ampol also warned of “challenging” conditions extending into early 2021 as snap lockdowns harm sales volumes for petrol and diesel, and international travel bans slash use of jet fuel.

Shares in Ampol, the former Caltex Australia, sank 2.6 per cent in morning trading after it said net profit on a replacement cost basis – the figure most closely watched by the market – fell to $212 million for the 12 months ended December 31. The figure was down from $344 million a year earlier and largely in line with consensus.

Losses at refineries such as Ampol’s Lytton plant in Brisbane mounted during the pandemic. Ampol

The bottom line figure, which includes the impact of changing oil prices on the value of inventories. swung to a loss of $485 million in 2020. That historical cost net loss also included $337 million of write-downs, mostly announced in the June half.

The results drew a mixed reaction from analysts, with Macquarie Equities describing them as “solid” and noting the strong performance in convenience retailing, while RBC Capital Markets said they were in line with expectations and highlighting the challenging outlook and “structural headwinds” to the business.

Citigroup’s James Byrne also noted the “soft” outlook for Australian fuel sales volumes and the negative impact of the stronger Australian dollar.

Ampol’s Lytton refinery, hit hard by the COVID-19 pandemic, lost $145 million, as already flagged by the petrol and diesel supplier in January. That compared with a profit of $70 million at the plant in 2019.

Earnings at the fuels and infrastructure business excluding the refinery also fell, while earnings at the convenience retailing business rose 43 per cent to $287 million.

“Heading into 2021, we remain focused on cost and capital efficiency and will continue to make decisions to improve returns and deliver growth to shareholders,” said managing director Matt Halliday.

“Our refining review is ongoing, with an outcome to be communicated to stakeholders in 2Q 2021.”

Ampol pointed to conditions early this year that “continue to be challenging”, citing the strength of the Australian dollar, which is impacting earnings in the fuels and infrastructure business, as well as ongoing travel restrictions due to COVID-19, which is reducing fuel volumes.

Demand for jet fuel is worst hit, with jet volumes for Ampol slumping 56 per cent in the December quarter compared with the same period in 2019.

Ampol has not accepted the federal government’s interim subsidy available to refiners as it completes its full review of the future of Lytton, which could be closed and turned into an import terminal just as BP has decided for its Kwinana plant in western Australia and ExxonMobil for its Altona plant in Victoria.

Only Viva Energy has accepted the interim subsidy for its loss-making Geelong refinery in Victoria, meaning that only its plant is relatively secure out of the country’s four refineries that were running when the pandemic hit.

Mr Halliday said on a conference call that Ampol is in “active dialogue” with governments as it works through the decision around Lytton. He said he expected to get clarity over the longer-term production subsidy over the next month, which would feed into the decision.

Viva and Ampol are expected to want more than the 1.15¢ per litre interim subsidy to keep plants going after July 1, with some sources saying they are angling for at least 2¢ per litre.

Ampol declared a final dividend of 23¢ per share, less than half the 51¢ payout for the second half of 2019.

Extracted in full from: https://www.afr.com/companies/energy/ampol-hit-by-refinining-loss-20210219-p5746k