Rescue funds keep Geelong refinery afloat as losses spiral to $100m

“Refining has obviously been incredibly challenging and remains so,” he told The Age and The Sydney Morning Herald.

“The company will continue to work closely with the federal government on the design and implementation of the longer-term package and expect this support will see the company maintain refinery operations beyond the conclusion of the interim refinery production payment.”

Oil refiners have been under enormous pressure since the onset of COVID-19 travel bans have kept cars parked in driveways, borders closed and planes grounded, with the outlook for the sector remaining deeply challenged. British oil giant BP has already announced the closure of Australia’s largest refinery in Perth, while Ampol (formerly Caltex Australia) is still considering whether to keep the Brisbane refinery open or turn the site into a fuel-import terminal instead.

Viva Energy on Friday said the Geelong refinery – which processes crude oil into fuel products – would drag the company’s overall benchmark earnings to a loss of between $17 million and $47 million, down from a $135 million profit in 2019.

Viva told investors it expected the refining business would sink to a loss as low as $99 million, down from a $117 million profit last year. Excluding refining, earnings in Viva’s broader business which includes the nation’s network of 1290 Shell-branded fuel stations, is expected to increase 14 per cent compared to 2019 on the back of continued improvement in fuel sales which were “progressively recovering towards pre COVID-19 levels”.

Mr Wyatt said 2020 had been an extremely challenging year for the Geelong refinery’s 700 workers amid the uncertainty surrounding their future. “To be able to confirm the interim support package this week and give some feedback that the progress with the government is going well and we have some confidence about the outcome … has been very welcome news for the site,” he said.

UBS analyst Joseph Wong estimated the federal government, which would provide about $60 million a year to Viva, would reduce the Geelong refinery’s break-even margin by $US1 a barrel to about $US3.8 a barrel. However he said the long-term sustainability of the refinery still required a recovery in regional refining margins.

“While government support for the sector lowers the minimum threshold for Australian refineries to remain operational, Australian refineries still require refining margins to improve or more government support will be required to be sustainable,” Mr Wong said.