By Ross Kelly
SYDNEY--Australia's biggest oil refiner, Caltex Australia Ltd.
(CTX.AU), said earnings slumped as production hiccups added to its
growing headache trying to compete with larger regional companies
able to produce transport fuel more cheaply.
Caltex said net profit in the six months through June fell 13%
to 171 million Australian dollars (US$154 million) on a measure
that excludes the value of inventories. A sharp drop in the local
currency also contributed to an operating loss at its refinery
business.
Australia's refiners are facing hardening competition from Asian
operators whose larger and more efficient processing facilities
have sprung up in places like India, Singapore and elsewhere.
"We have high labor costs compared to other Asian refineries and
it costs a reasonable amount of money to ship oil down here," said
Evan Lucas, a Melbourne-based strategist at IG, a brokerage
firm.
Caltex, whose earnings have been squeezed in recent months, has
responded with moves to convert one of its Australian refineries
into a fuel-import terminal, where it plans to receive gasoline and
jet-fuel produced by other refiners, and then selling them directly
to motorists and businesses. The Australian firm is half-owned by
U.S.-based Chevron Corp. (CVX).
The impact from tighter competition was compounded in the latest
results by a series of setbacks that hampered production at
Caltex's two refineries. A small fire at the Lytton facility in
Brisbane, Queensland state, stalled fuel production there in May,
while the following month output was dented by damage to a pipeline
serving the Kurnell refinery in Sydney, New South Wales.
A further burden for Caltex has been a decline in the Australian
dollar from as high as A$1.04 in April to A$0.92 at the end of June
that pushed up the cost of its U.S.-dollar payables--including the
crude oil that it refines.
Caltex isn't the only Australian operator facing problems. Last
year, Royal Dutch Shell PLC. (RDSA) converted its Sydney-based
Clyde refinery into a fuel-import terminal and is considering doing
the same at Geelong, in Victoria state, if it can't find a buyer
for it.
In recent years, the performance of Caltex's direct
fuel-marketing business has held up better than earnings at its
refining division, as Australia's booming resources industry
supported economic growth. On Monday, Chief Executive Julian Segal
shrugged off concern that a recent slowdown in China's demand for
Australia's mineral resources would crimp fuel demand from the
domestic mining industry.
"What is really slowing down is not actually the digging from
existing projects, it's investment in new projects, so we don't see
volumes at all slowing down," Mr. Segal told reporters.
In the latest results, Caltex said it benefited from higher
margins at its refining business in the first half, but that the
longer-term outlook was gloomy.
"As we see more capacity additions coming online over the next
two, three, or four years, we anticipate that refiner margins will
be negatively impacted," Caltex's Chief Financial Officer Simon
Hepworth said on a conference call with reporters.
Caltex paid out an interim dividend of 17 cents a share,
unchanged from a year earlier.
Write to Ross Kelly at ross.kelly@wsj.com
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