Writedown of Geelong refinery leads to third annual loss for Shell Australia

Royal Dutch Shell’s proposed sale of its Geelong refinery has led to a further A$203 million (US$186 million) writedown, contributing to a third straight annual loss from the company’s Australian refining and fuel marketing assets.
In a filing with the Australian Securities and Investments Commission, Shell said its refining and marketing business had recorded an after-tax loss of A$288 million (US$264 million) last year, down from a A$495.2 million (US$453 million) loss the previous year.
“Operational and financial performance was mixed across the business,” the company said. “The performance of the marketing business was strong, with sales volumes growing 4.6% year-on-year, driven by growth in sales in a number of the fuels businesses.”
The writedown follows a A$638 million (US$584 million) writedown last year and a A$407 million (US$373 million) writedown of the Clyde refinery. Shell Australia closed its 79,000 barrel-per-day (bpd) Clyde refinery in Sydney last September, converting the facility and its Gore Bay terminal in Sydney Harbor into a fuel import terminal, to supply New South Wales with petroleum products.
The recent writedown was triggered by the company’s decision, announced in April, to sell the plant. The refinery is to be sold under the condition that it remains operational and that the new owner continues to supply Shell’s local retail network. The company wants to conclude the sale process by the end of 2014. Should Shell’s efforts to sell the refinery fail, it plans to close the refinery and convert the site into an import terminal, similar to the old Clyde refinery site. About 500 jobs at the refinery are at stake.
The decision to shutdown Clyde and Geelong is a result of Shell’s re-balancing of refinery assets and concentrate its investment on world-scale facilities, such as its refinery in Pulau Bukom in Singapore.
Shell said the accounting impairment did not reflect any reduction in the potential sale value of the Geelong refinery.
“The writedown is the result of Shell’s view of cashflow from the refinery prior to the transfer of ownership,” a spokesman said. “Experience says that buyers are interested in long-term cash flows, not book values, and any buyer would take a longer-term view of the refinery.”
(June 4, 2013)