Australia's Oil Refining Industry In Crisis - Minister

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Wednesday, October 4 12:28 PM SGT

Australia's Oil Refining Industry In Crisis - Minister CANBERRA (Dow Jones)--Australia's oil refining industry is in crisis and must restructure if it is to have a future, Nick Minchin, minister for industry, science and resources, said Wednesday. He was commenting in a statement entitled "Oil Refining Industry In Crisis" which followed the publication Tuesday of an annual survey of the industry by the Australian Institute of Petroleum, the main industry lobby group.

The survey, prepared for AIP by business consultants Ernst & Young, reported that net underlying after-tax profit for the industry fell in 1999 to A$221 million, down sharply from A$484 million in 1998. AIP defines underlying profitability as profit after adjusting for inventory gains due to crude oil prices.

The underlying return on earnings before interest and tax on average total assets in 1999 was 2.6%, the lowest since 1992 and down sharply from 7.3% in 1998, the survey found.

"This return continues to be inadequate with gross revenues of almost A$25 billion and total assets of more than A$10 billion," the survey said.

The industry wasn't able to achieve adequate profitability due to high levels of competition, an oversupply of gasoline and diesel in Asia, and low refining margins internationally, it said.

The refining sector suffered a loss in 1999 of A$61 million, with underlying overall profitability only achieved by a profit of A$282 million from marketing activities, or 1.1% of gross sales revenue, it said.

Minchin said the more closely one looks at the survey results, the worse the sector appears.

"If the refining industry is to survive and flourish in Australia, it will need to restructure so as to draw on the benefits of larger economies of scale and to underwrite the significant new investments needed to make the cleaner fuels that are on the way," he said in the statement.

(MORE) Dow Jones Newswires 04-10-00

0422GMT Rationalization Inevitable

"There will inevitably be refinery rationalization in Australia, and there needs to be reform of the retail sector of the (fuel) industry," Minchin added.

The local refining industry is dominated by four major companies - local units of BP Amoco PLC (BP), Exxon Mobil Corp. (XOM) and Royal Dutch/Shell Group (RD), along with Caltex Australia Ltd. (A.CTX), which is 50% owned by Singapore-based Caltex Corp. (P.CXX). The other half of Caltex Australia is owned by local shareholders. Caltex Corp. is a joint venture between Chevron Corp. (CHV) and Texaco Inc. (TX).

The average throughput of Australia's eight refineries is 108,000 barrels a day. They compete against refineries in Asia, many of which have capacities far in excess of 250,000 b/d.

Minchin said the government last year prepared an extensive reform package for the industry, which among other things was aimed at removing restrictions on the number of retail sites that major refiner/marketer companies could operate.

But this package didn't win the backing of either the Senate (where the government doesn't hold a majority) or service station operators, which compete against major refiner/marketers.

http://asia.biz.yahoo.com/news/asian_markets/article.html?s=asiafinance/news/001004/asian_markets/dowjones/Australia_s_Oil_Refining_Industry_In_Crisis_-_Minister.html

-- Martin Thompson (mthom1927@aol.com), October 04, 2000


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