Caltex jobs at risk

February 16, 2012
The Age

Caltex writes down value of two key refineries.

Concerns have deepened that Caltex plans to shutter two of Australia’s largest remaining oil refineries following a decision by the company to write $1.5 billion off their value, placing more manufacturing jobs at risk.

The writedown comes as the oil products refiner and marketer works through a detailed assessment of the future of these operations.

Caltex operates refineries at Kurnell in Sydney and Lytton in Brisbane, which with 244,000 barrels a day of capacity, account for almost one third of Australia’s total capacity. Kurnell alone employs about 700 staff.

Australian refiners are battling to compete as a result of the high Australian dollar. Asian rivals also have the advantage of more modern, larger-scale refineries.

Even now Caltex is forced to turn to overseas refineries for as much as 40 per cent of its product sales.

According to a report by the competition watchdog, the Australian Consumption and Consumer Commission, in 2008, Australia sourced just 20 per cent of its refined oil product locally, down from 37 per cent seven years earlier.

Review
Caltex told the sharemarket this morning it will write $1.5 billion off the value of its refining assets, as it continues a review of its refining future in Australia.

That review still has another six months to run, although news of the write-down will feed though to widening concerns that Caltex is moving closer to a decision to axe local product supplies.
Even with the asset writedown, Caltex said it has held its earnings forecasts unchanged.

Aging plant
Built in the 1950’s, the Kurnell refinery is the larger of the two, with 135,000 barrels a day of capacity, while Lytton, commissioned in the mid-1960’s, is the smaller, with 109,000 barrels a day of capacity.

The strong Australian dollar continues to squeeze refiner margins, a spokesman for the company said, at a time of rising operating costs.

However, the two refineries are competing with imported product from refineries in Asia, most notably Singapore, which have significantly larger throughput capacity than the local refineries, putting imported refined product at a significant cost advantage.

Prior to the write-down, these assets were valued in Caltex’s accounts at $1.84 billion, which has now been cut to just $340 million.
brobins@smh.com.au

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