Caltex set to close Kurnell refinery, focus on marketing and distribution instead

Oil refiner and fuel marketer Caltex has decided to close the Kurnell refinery in Sydney, Australia, and instead operate it as an import terminal. The hope is, according to Caltex CEO Julian Segal, that the AUD680 million (USD639 million) closure of Kurnell, due to be completed at the end of 2014, would reduce earnings and cashflow volatility and give the company options to build its more profitable marketing and distribution division or return cash to shareholders.
“As we reduce our exposure to refining following the closure of our Kurnell refinery, we anticipate there will be lower volatility in our future earnings and cash flow,” Segal said after the company reported full-year net earnings of AUD195 million (USD183.3 million), up from AUD167 million (USD157 million) a year earlier.
Chief Financial Officer Simon Hepworth said reduced maintenance costs when the company only has the Lytton refinery in Brisbane would mean there would be improved cash flow.
But he said it was too early to start discussing the use of the cash in any more detail. Credit Suisse analysts are estimating Caltex will be able to more than double its full-year dividend by 2015-16.
The company’s shares finished AUD0.02 (USD.019) down to AUD18.93 (USD17.80), after having fallen 20% in the past three months.
Segal said the second half was looking strong, driven by Caltex’s fuel marketing division, despite a competitive environment.
The weaker Australian dollar had a negative impact in the first half, but in the longer term was expected to benefit the company through better refining margisn, he said.
Caltex had been in discussions with major shareholder Chevron about supplying LNG for use in transport and for remote power stations, Segal said.
He said the transport option, which Shell is pushing through a plan to build refueling stations between Sydney and Melbourne, did not look feasible at the moment. But remote power stations at mine sites and communities could hold more promise.
(August 27, 2013)