Refining NZ Operational Update for May/June 2020

HIGHLIGHTS o Excellent personal and process safety performance through period of changed operating mode. o Refinery and Refinery to Auckland pipeline throughput was circa 55% and 60% respectively, compared with the previous corresponding period, due to the impacts of COVID-19 on transport fuel demand, with gasoline and diesel recovering close to previous levels by the end of May. o Gross Refining Margin (GRM) remained at the Processing Fee floor due to COVID-19 impacts on New Zealand refined product demand. o Refining NZ net debt was $250 million as at the end June reflecting cash neutral operations at the Fee Floor since April 2020. o Phase 1 of Strategic Review completed, with an update to the market on 25 June. Detailed planning now underway for a simplified refinery and, in parallel, evaluation of a possible future staged transition to an import terminal. COMMENTARY Refining NZ's excellent health, safety and environment performance continued in May and June, with no Tier 1 or Tier 2 process safety events or recordable cases, despite the changes made to operations in response to COVID-19. New Zealand refined fuel demand increased from April levels as COVID-19 travel and transport restrictions were eased to Alert Level 2 in mid-May and then to Alert Level 1 in early June. Gasoline and diesel demand recovered to end the period at circa 95% and 100% respectively of demand compared to the same period last year. However, jet fuel demand remained low at approximately 35% of prior levels. Through May and June, as previously signalled, Refining NZ operated the refinery in cyclic mode to produce a substantially lower output. The Company continued with strategies aimed at minimising jet fuel production while meeting gasoline and diesel requirements, and refinery throughput was constrained by the jet fuel demand destruction. Refinery throughput was 3.9 million barrels during May/June, circa 55% compared with the same period last year, before process units were put on standby from early July to mid-August to balance fuel supply across the country. Refinery to Auckland Pipeline (RAP) throughput during May/June was approximately 60% compared to the same period last year. Refining NZ has agreed with its customers to operate the refinery in a reduced production mode from August, when the refinery resumes production, to the end of October. The GRM improved significantly compared to the prior period to be USD 4.59 per barrel, with an above average uplift of USD 8.37 per barrel over a weak Singapore Dubai complex margin of USD -3.78 per barrel. Key contributors to the increased uplift were due to COVID-19 impacts on demand. Firstly, significant demand for floating storage caused increases in both crude oil VLCC shipping costs to Singapore and finished product shipping costs to New Zealand. Secondly, Abu Dhabi crudes processed at the refinery were heavily discounted relative to Dubai crude. The Company's Processing Fee revenue was NZD 23.3 million, with Fee Floor payments by our customers of NZD 3.5 million. Net debt was circa $250 million at the end of June, reflecting three months of cash neutral operations at the Fee Floor. The Company continues to plan to operate cash neutral through the balance of the year, when factoring in the Processing Fee Floor and reduced RAP income. Refining NZ completed Phase 1 of its Strategic Review and provided a market update on June 25. The Company is now developing plans to simplify refinery operations and structurally reduce operating costs. In parallel the Company will continue to evaluate a possible future staged transition to an import terminal. Refining NZ expects to provide a further update on the Strategic Review process around the end of the third quarter. For further information: Ellie Martel Government and External Affairs Manager Ellie.Martel@refiningnz.com +64 (0)20 4174 7226 End CA:00356642 For:NZR Type:MKTUPDTE Time:2020-07-22 09:59:37