Turmoil in the Middle East has delivered a windfall for Viva Energy, with soaring refining margins helping the fuel supplier more than double interim earnings and reigniting the debate over Australia’s fuel security.
The owner of one of Australia’s two remaining oil refineries expects replacement cost EBITDA of between $770m and $780m for the six months to June 30, up sharply from $305m a year earlier, after tighter supplies of refined fuel across Asia sent margins sharply higher. The result comes despite an April fire at its Geelong refinery, which temporarily disrupted production before the plant returned to more than 90 per cent of normal capacity following repairs completed in June.
The result comes as the Albanese government backs a feasibility study into a new refinery in Western Australia as part of efforts to bolster Australia’s fuel security. The conflict in the Middle East has tightened supplies of refined fuel across Asia, lifting refining margins and renewing scrutiny of Australia’s growing reliance on imported fuel after decades of refinery closures left the country with just two operating refineries.
Chief executive Scott Wyatt said the first half had tested global energy supply chains, but Viva’s integrated business had enabled it to continue supplying customers throughout the disruption.
“Our strong financial results reflect a substantially improved refining margin environment which has been driven by a regional shortage of oil supply and refining capacity, as well as improving retail sales growth and continuing strength of our commercial businesses,” he said.
The earnings update was well received with Viva shares up 3.7 per cent to $2.53 in a lower market on Tuesday morning.
The Geelong refinery recorded an average refining margin of $US21.1 a barrel during the half, up from $US8.2 a year earlier, on crude intake of 19.7 million barrels. Elevated margins meant Viva did not receive payments under the federal government’s Fuel Security Services Payment because refining margins remained above the scheme’s support threshold.
The Commercial & Industrial division also benefited from volatile energy markets, with EBITDA expected to reach about $305m after stronger demand from the resources sector and marine customers combined with favourable hedging and long-term supply arrangements secured before conflict erupted in the Middle East. The company warned those arrangements were expected to provide less support in the second half.
Retail operations also strengthened during the half. Fuel sales volumes across the convenience & mobility business rose 2.4 per cent as competitive pricing attracted motorists back to Viva’s network, while convenience sales excluding tobacco increased 1.3 per cent on stronger customer traffic. Tobacco sales continued to decline, reflecting broader industry trends, although the company said they had stabilised compared with the previous six months.
Viva also continued to reshape its retail business, extending the Flybuys loyalty program across the OTR network and establishing new distribution centres in Victoria and Queensland ahead of a NSW facility opening later this year. The company expects to open between 20 and 25 new OTR stores this financial year, convert up to 15 Reddy Express sites to either OTR or Liberty Convenience formats and expand unattended self-service stores following successful trials.
The stronger earnings also bolstered the company’s balance sheet, with net debt falling to about $1.7bn from $2.1bn at the end of December as profits translated into stronger cash generation.
Viva said regional refining margins were expected to remain above long-term averages through the remainder of the financial year, suggesting geopolitical uncertainty could continue to underpin earnings despite expectations that hedging gains will moderate.
Extracted in full from: https://www.theaustralian.com.au/business/mining-energy/viva-energy-profits-more-than-double-amid-middle-east-supply-crisis/news-story/364d1968afc5cdf46e8a66ef1dbb38eb
