Client: Refining NZ

Refining NZ owns New Zealand’s only oil refinery at Marsden Point near Whangarei. The company charges its customers a fee for processing their crude oil into petroleum products.

Envisory was contracted by Refining NZ in 2014 and 2017 to assess whether its current processing fee arrangements provide shareholders with an appropriate financial return and whether the company provides a competitive supply of product to its customers over a business cycle. Benchmarks and associated premiums used to value crude and product in the fee, and the current fee structure against alternatives available was also assessed.

The review determined that:

  • Over a 10 year period, Refining NZ provided its shareholders with an appropriate return (a return above the weighted average cost of capital, WACC);
  • Over a 10 year period Refining NZ  provided its customers with a competitive supply of products (better than the equivalent imported product);
  • During periods when refining margins are low, the return to shareholders is below WACC, and the supply to customers is not competitive
  • The benchmarks for crude and product values used in the fee calculation are appropriate, although freight benchmarks could better reflect actual market costs; and
  • The current processing fee structure and split of gross refining margin provides an appropriate balance between the return for Refining NZ, and customer competitiveness. Alternative processing fee structures are unlikely to provide the same balance, and would not prove to be sustainable over a typical refinery business cycle.
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Envisory Limited provides strategic advice and consultancy services to the energy sector in New Zealand, Australia and the Pacific Islands. Our expertise covers energy security, petroleum fuels procurement, and services to the energy sector with a focus on oil and gas.