BP downbeat on oil refining margins

BP says oil refining margins unlikely to improve this

year as industry outlook challenging
Jane Wardell, AP Business Writer, On Tuesday February 16, 2010, 1:31 pm EST

LONDON (AP) -- Oil refining margins -- the profits made from turning a barrel of
crude into gasoline, diesel and other fuels -- are unlikely to improve substantially this
year, a BP PLC executive said on Tuesday.

Richard Hookway, BP's chief financial officer for refining and marketing, also said
that the company is unlikely to build a hydrocracker facility at its Rotterdam refinery
in the next few years, noting the difficult outlook for the refining sector.
Hydrocrackers are used to make distillates such as diesel fuel.

"We see refining margins over the coming 6 months, 12 months, to be quite
challenging," Hookway said at the annual International Petroleum Week conference
in London. "We don't see them as improving substantially on 2009."

Major oil companies like BP have suffered from weak refining margins because of a
collapse in demand thanks to the global economic rout and a glut of new capacity in
the emerging economies of Asia and the Middle East.

"The golden moment of refining, let alone the golden age, won't be returning any time
soon," Hookway said.

However, he added that refining margins found a floor in the final quarter of 2009 and
that he didn't "see them going much below that level."

BP, Europe's second largest oil company, said refining margins averaged $4 a barrel
in 2009, at least $2 below the 10-year average and well below the $10 per barrel in the
boom times of 2007.

Crude oil prices crashed under $40 a barrel at the peak of the financial turmoil, far
below a record high of $150 in July 2008.

The drop in crude prices has already reinforced fears that crucial downstream
investment -- in refining and distribution -- will be curtailed.

Several other oil majors, including Royal Dutch Shell, Chevron Corp.,
ConocoPhillips and Valero Energy Corp. have scaled back their global refining
operations.

Hookway said that BP would be selective about investment in downstream projects,

but acknowledged that it eventually wanted to rebalance its refinery operations away
from OECD countries in favor of emerging economies, which will be responsible for
oil product demand going forward.
"We want to increase and rebalance our exposure," he said. "We want to both have
more and a greater proportion of our assets in fast-growing parts of the world."

In the meantime, Hookway said that a hydrocracker project, which would help the
company produce higher quality middle distillate fuels like gasoil and diesel, in "on
the drawing board" for BP's Rotterdam refinery.

"It certainly would be part of the long-run agenda for refineries like Rotterdam, but
not for the next year or two

NZ Refining full-year profit down 81%

Andrea Deuchrass | Tuesday February 16, 2010 - 02:31pm

New Zealand Refining Company’s full-year profit plunged 81% to December

2009.

The $23.6 million after-tax full year profit compares to last year’s $124.9
million profit.

The Marsden point-based company (NZX: NZR) will not pay a dividend.

Ordinary revenue was down 37% to $250.5 million from last year’s $397.8
million.

Chairman David Jackson said the disappointing result had been widely
anticipated, given the volatile market conditions of the second half of 2009,
when the company was operating at a loss.

At the beginning of the year, the company’s refining margin was about USD12
a barrel, but by the end of the year it was down to around USD1 a barrel.

“Conditions were dominated by the global financial crisis, which saw demand
for oil products falter just as new refinery had come online.

“The resulting oversupply has continued to depress refiners’ margins with a

number of major oil companies, including BP, Shell, Chevron and Exxonmobil
declaring a significant downturn in profits,” he said.

“Margin pressure continues and is forcing the sale, closure or reduced

capacity at refineries across the globe, notably in the UK, France, Spain,
Japan and the US where the largest refiner Valero, closed its 185,000 barrels
a day Delaware City plant, last November.”

However, the company said its customers’ confidence in the plant kept it fully
loaded.

Last year, despite two shutdowns, the refinery processed 37.9 million barrels
of feedstock (compared to 39.2m in 2008) and pumped 2.8 million cubic
metres of petrol, diesel and jet fuel to Auckland (compared to 2.8m in 2008).

Earlier this month, the company said it operated at near full capacity for
November and December, with a throughput of 7.2 million barrels, but
margins dropped to the lowest point in at least five years.

NZ Refining said two shutdowns were scheduled for 2010 – in April and
September. The shutdowns, for the replacement of a catalyst in the
hydrocracker and regenerating the Platformer catalyst respectively, would
cost the company $44 million.

Other (budgeted) capital costs during the year amounted to $24 million.
Directors had therefore decided not to pay a final dividend.

Mr Jackson said there was no change to its dividend policy and dividend
would resume as soon as the company returned to sustainable profitability.

The company's share price was up .3 cents to $3.60 this afternoon.