Transition of Marsden Point site to a fuel import terminal

refiningnz.com



NZX ANNOUNCEMENT
22 November 2021

Key milestone in transition of Marsden Point site to a fuel import terminal from April 2022

Refining NZ is pleased to announce today that further to the shareholder mandate received in August,
it has reached a key milestone in the transition to a fuel import terminal as part of its strategic vision
to be New Zealand’s leading fuel infrastructure company.
Naomi James, CEO, said “Today is a momentous day in the journey to transition our business from
operating as a refinery to an import-only fuel terminal. After 60-years of operations as New Zealand’s
only oil refinery, we look back on the past with pride and look to the future with confidence that our
business will continue to contribute to our community, and New Zealand, long into the future.”
Long-term customer agreements executed
The Company has entered into long-term agreements with its three existing customers (bp, Mobil, Z
Energy) for the provision of import terminal services, consistent with the terms described in the
Explanatory Booklet and approved by shareholders.
1
All customers and Refining NZ have agreed to
withdraw existing dispute notices under the Processing Agreements with effect from the
commencement of import terminal services under the terms of the Terminal Services Agreements.
On the basis of the shareholders’ approval received in August, the Board has now made the Final
Investment Decision (FID) to proceed with the conversion and a name change to Channel
Infrastructure NZ Limited (NZX:CHI) (Channel Infrastructure) to align with the commencement of
import terminal operations from April 2022.
The Company’s Chairman, Simon Allen, said “We are pleased to reach this key milestone. I want to
thank all of those who have been involved with reaching this point and delivering a clear path forward
for our Company. At the same time, our dedicated workforce have continued to work hard every single
day to ensure the safe operation of the refinery – made more difficult by the ongoing COVID
disruptions – and I pay tribute to their commitment.”
Naomi James added, “I want to acknowledge the professionalism and dedication of our whole team
over the past 18-months throughout the strategic review, refinery simplification, lockdowns and
preparations for conversion – the team have continued to quickly adapt to overcome these challenges
while ensuring that we can safely supply New Zealand with its fuel needs.


1
The Explanatory Booklet was released on 5 July 2021 and can be found under the ticker “NZR” on www.nzx.com. The Shareholder Vote
occurred on 6 August 2021. The Terminal Services Agreements (TSAs) are subject to certain conditions precedent summarised in the
Explanatory Booklet. If all conditions in the TSAs have not been satisfied by 1 April 2022, terminal services will be provided under the
existing Processing Agreements (at TSA fees) until the conditions are satisfied.

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“As we look to our future as Channel Infrastructure, a key focus for me is supporting our people and
readying them for this change. I know that we have some of the best talent in the region working on
our site, who will continue to play a critical role in the ongoing operation of our refinery over the
coming months. I am committed to supporting them through this time to find new employment or
training opportunities, to be ready to transition to new roles once the refinery is safely shutdown.
This includes working with other businesses to skills-match our people with their vacancies.”
Agreements to provide private storage services
The Company is also pleased to announce it has executed long-term agreements with customers to
provide dedicated private storage, with further agreements expected.
As described in the Explanatory Booklet, the Company has identified private storage as a
complementary growth opportunity which provides customers with increased product supply scale
and flexibility. An initial capital commitment of c.$30 million is expected to result in incremental
revenue of c.$50 million (real) on a fixed rental basis over a 10 year term, with high EBITDA conversion.
This capacity will be progresively made available following required works from the commencement
of terminal operations through to early 2023.
Management is also actively engaged with customers on additional private storage opportunities, as
well as developing funding plans for private storage. This additional demand could require further
capital investment of up to c.$25 million and deliver additional revenue of up to c.$60 million (real)
over a 10-year term.
Naomi James said, “Outside of these opportunities, our team is continuing to monitor the
development of the Government’s policy on domestic fuel stockholding requirements. Given our
ability to provide strategic storage with our existing tankage and proximity to the Auckland market we
are ready to engage with our customers and the Government to support the implementation of any
confirmed policy.”
2

Estimated financial impacts of conversion
The Company confirms that the refinery is expected to run cash neutral to closure.
3

In the appendix to this announcement, we set out information
regarding certain elements of the
estimated financial impacts of the conversion on the Company
, including in 2023 being the first full
year of import terminal operations.
The Company will provide a quarterly update on the conversion project through 2022, replacing the
bi-monthly operating report which will cease from the end of 2021
.



2
See Section 2.5 of the Explanatory Booklet for further details about strategic storage
3
Cash neutral excludes Strategic Review / Conversion Project restructuring and implementation costs.

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About Channel Infrastructure NZ
Channel Infrastructure’s vision is to be New Zealand’s leading independent fuel infrastructure
company. It will utilise the deep-water harbour and jetty infrastructure at Marsden Point to import
refined fuel, which is owned by its customers. Fuel will be stored at the Marsden Point site in existing
tanks at what will be the largest fuel terminal in New Zealand, with 180 million litres of shared
capacity, plus dedicated private storage and capacity to provide additional storage. Channel
Infrastructure will continue to provide quality fuel testing services both at the Marsden Point site and
around New Zealand, through its subsidiary, Independent Petroleum Laboratory Limited (IPL).
Fuel from Marsden Point will be distributed on behalf of Channel Infrastructure’s customers primarily
to the Auckland and Northland markets, which make up around 40% of New Zealand’s fuel demand,
through the 170-kilometre Refinery to Auckland Pipeline (the RAP) and the truck loading facility (the
TLF) located adjacent to the Marsden Point site.
Conversion to an import terminal will reduce the Company’s direct CO
2
emissions by almost one
million tonnes per annum, delivering around a third of the Governments’ first Emissions Reduction
Budget
4
. The RAP continues to provide the lowest carbon emissions option for delivering fuel to New
Zealand’s largest market – Auckland.
Refining NZ has been the country’s only oil refinery since it was established in 1961. In response to a
significant decline in refining margins because of excess refining capacity in the Asian region, Refining
NZ initiated a strategic review of the business in April 2020, to determine the optimal future business
model and capital structure for the Company’s future.  This review included extensive engagement
with a range of stakeholders including customers and Government regarding potential options for
ongoing refinery operations and the potential conversion to import terminal operations.  
For more information on Channel Infrastructure, please visit: https://www.refiningnz.com/what-is-
channel-infrastructure/.

ENDS

Authorised by:
Chris Bougen
General Counsel and Company Secretary

Media contact
Laura Malcolm
communications@refiningnz.com
+64 21 02363 297


4
Reference: Transitioning to a low-emissions and climate-resilient future: emissions reduction plan discussion document
(https://environment.govt.nz/publications/emissions-reduction-plan-discussion-document/). The Company’s emissions are expected to
reduce by c. 3.5MT over the 2022 -2025 budget period.

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Appendix – Estimated financial impacts of conversion (excluding private storage)
We set out below information regarding certain elements of the estimated financial impacts of the
conversion on the Company, which updates the information provided in the Explanatory Booklet,
dated 5 July 2021. It should be read together with the Explanatory Booklet, in particular Section 6
regarding the risks faced by the Company during and after the conversion and
in light of the current
uncertainty and disruption caused by the outbreak of COVID-19.

• First full year of terminal operations in 2023 expected to be:
•
c. $110 million revenue
5


•
c. $35 – 38 million operating costs
6
(subject to electricity supply, transmission and
distribution costs)

•
c. $12 million financing costs
7

•
No income tax payable, based on available tax losses
8
.

•
Terminal capital expenditure expected to be in the range of $5-10 million per annum over the
initial contract term.


•
Total conversion cash costs (operating and capital) expected to be in the range of $200 to
$220 million
9
over 5-6 years with around two thirds currently expected to be spent to the end
of 2022
.
•
Channel Infrastructure’s dividend policy is expected to be based on a pay-out ratio of 60% –
70% of Free Cash Flow
10

and is intended to commence after an initial period of deleveraging
to reduce leverage to below 4.5 times Net Debt/EBITDA.
11
Assuming the level and timing of
conversion costs outlined above are achieved, the Company would expect dividends to
recommence in 1-2 years following the commencement of ITS services.

• Impairment and revaluation work underway following FID, with results to be reflected in FY21
accounts.
12












5
Estimated revenue includes $100 million terminal revenue and $10 million of other revenue as detailed in the Investor Presentation
issued 5 July 2021.
6
Operating costs excluding conversion operating costs.
7
Financing costs based on current terms, hedged positions and current BKBM.
8
See section 4.8 of the Explanatory Booklet dated 5 July 2021 for more information.
9
See section 4.6 of the Explanatory Booklet dated 5 July 2021 for more information. Note that this excludes financing costs and
demolition costs (expected to occur 10+ years post conversion).
10
Adjusted net cash generated from operations less maintenance capex.
11
The Board reserves the right to adjust the pay-out ratio or expected timing for the recommencement of dividends should the timing,
costs or revenue associated with the conversion (including new services such as Private Storage Services) or the import terminal business
change. The dividend policy will be subject to the Board’s due consideration of the Company’s medium-term asset investment
programme; a sustainable financial structure for the Company, recognising the targeted investment grade rating (within five years of the
Services Effective Date); and the risks from short and medium term economic and market conditions and estimated financial performance.
12
See section 4.7 of the Explanatory Booklet dated 5 July for more information.

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DISCLAIMER
Not an offer: This announcement is for information purposes only and is not an invitation or offer of securities for subscription, purchase
or sale in any jurisdiction.
Forward-looking statements: This announcement may include forward-looking statements, which are all statements other than
statements of historical fact, and any other statement or estimate regarding the future prospects or performance of the Company (and its
subsidiaries) (Group), its business or its assets including following any conversion to an import terminal (Conversion). By their nature,
forward-looking statements involve risk and uncertainty because they are based on assumptions and judgements and relate to events and
depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to
differ materially from those expressed or implied by these forward-looking statements, such as the risks identified in Section 6 of the
Explanatory Booklet, dated 5 July 2021. You acknowledge that any forward-looking information: (i) is provided for illustrative purposes
only; (ii) reflects various judgements and assumptions which may or may not prove to be correct, reasonable or reliable; (iii) is subject to
the emergence of new risk factors and to unexpected impacts of known risks; and (iv) may be affected by subsequent events, including
changes in economic and other circumstances. None of the Company, its subsidiaries, their directors, employees or advisers guarantee the
future performance of the Company and its subsidiaries.
Financial information: Forward looking figures in this announcement are unaudited and may include non-GAAP financial measures and
information. Not all of the financial information (including any non-GAAP information) will have been prepared in accordance with, nor is
it intended to comply with: (i) the financial or other reporting requirements of any regulatory body; or (ii) the accounting principles
generally accepted in New Zealand or any other jurisdiction with IFRS. Some figures may be rounded, and so actual calculation of the
figures may differ from the figures in this announcement. Non-GAAP financial information does not have a standardised meaning
prescribed by GAAP and therefore may not be comparable to similar financial information presented by other entities. Non-GAAP financial
information in this announcement is not audited or reviewed.
No representation or warranty: To the maximum extent permitted by law, neither the Company nor any of its subsidiaries or any of their
respective shareholders, directors, officers, agents, employees or advisors, shall have any liability for, nor do any of them give any
representation or warranty (express or implied) as to, the accuracy, completeness, reliability, adequacy or reasonableness of any
statements, opinions, information or matters (express or implied) contained in, or derived from, or any omissions from the announcement
or any other communication transmitted to any person in relation to the Group, its business, or its assets, including after any Conversion.
No person has any obligation to update or revise any information, whether as a result of new information, future events or otherwise,
subject to the Company’s continuous disclosure obligations. To the maximum extent permitted by law, nothing will create or constitute
any implication, representation or warranty that there has been no change in the information in this announcement or the affairs or
prospects of the Group, its business or assets and the details of the Conversion since the date of this announcement or since the date at
which any information in this announcement is expressed to be applicable.
No reliance: This announcement does not constitute investment, accounting, financial, legal, tax or other professional advice. You
acknowledge that you are responsible for, amongst other things, obtaining your own investment, accounting, financial, legal, tax and other
professional advice, and conducting your own investigation and analysis of the Group, its business, its assets (including after any
Conversion), the information in this announcement and any assumptions, uncertainties and contingencies which may underlie any such
information. Any reliance by any person on any information in this announcement is a matter for that person’s own judgement and no
liability is accepted by the Company or any of its subsidiaries or any of their respective shareholders, officers, directors, agents, employees
or advisors for any such reliance, to the maximum extent permitted by law.
Exclusion of liability: You acknowledge and agree that, to the maximum extent permitted by law, neither the Company nor any of its
subsidiaries, or any of their respective shareholders, directors, officers, employees, agents, or advisors: (i) will be liable to reimburse or
compensate any person for any liabilities, costs, losses or expenses incurred by you or any of your related bodies corporate or affiliates or
any of their respective shareholders, directors, officers, employees, agents or advisors in connection with the review, investigation,
evaluation or analysis of the information in this announcement, the Group, its business, its assets including after any Conversion, or
otherwise arising from any such review, investigation, evaluation or analysis; or (ii) have any obligation to negotiate or complete any
aspect of the Conversion with any party and the Company reserves the right to discontinue discussions concerning all or part of the
Conversion at any time and for any reason.