Caltex Australia (CTX) yesterday joined Qantas (QAN) in confirming that it has been one of the big winners in the current slump in global oil prices which fell to new five year lows yesterday.
The company told the ASX before trading that the slide – now more than 40% – would give a sharp boost to Caltex Australia’s profit this year, which could be up by up to 42%.
But it won’t last as the oversupply of oil and product (such as petrol, jet fuel and oils) will have an increasingly negative impact on refining and other margins early in 2015.
Caltex shares ended up more than 2.8% at $31.27, adding to the long rally since mid year which has seen the price rise 50% from around $22.
CTX YTD – Caltex confirms boost from oil slide, but not for long
Caltex said that on an historic cost profit basis (which all companies use for accounting, tax and reporting purposes), it "now expects an after tax profit in the range of $90 million to $110 million for the 2014 full year, including a loss relating to significant items of approximately $110 million after tax. This compares with the 2013 full year profit of $530 million."
Caltex said, "The 2014 outlook includes a forecast product and crude oil inventory loss of approximately $250 million after tax, which reflects the recent significant fall in Brent crude oil prices. This compares with an inventory gain of $172 million after tax in 2013.”
Caltex said that on a Replacement Cost Operating Profit (RCOP, which it uses internally), it now “forecasts an after tax profit for the 2014 full year of $450 million to $470 million, excluding significant items".
"This outlook compares with an RCOP after tax profit of $332 million for the 2013 full year, excluding significant items.
“The overall result reflects another record Marketing profit and the impact of favourable externalities, which have benefitted the Refining & Supply result,” Caltex said.
In 2013, the refining business posted a loss of $171 million, which continued into the first half of this year, when it was $65 million in the red.
"The sharp decline in Brent crude oil prices in recent weeks has been a major contributor to the stronger refiner margin in the second half as product prices have not fallen as quickly as the crude price," Caltex said.
The Caltex refining margin, the gross profit the company makes from turning a barrel of crude oil into a barrel of fuels such as petrol and diesel, is set to average about $US12 a barrel in 2014, up from $US9.34 in 2013.
But Caltex, which closed the Kurnell refinery, one of its two Australian refineries this half, said the strength in refining margins is not expected to last because of oversupply in Asia, and as prices decline following the drop in crude prices.
“The recent strength in refiner margins is not expected to persist given new supply additions in the region and the expectation is that product prices will adjust downwards, reflecting the fall in crude prices,” Caltex said.
"The fall in the Australian dollar has had a favourable impact on the Australian dollar denominated refiner margin, but is expected to result in a net loss after hedging on US dollar payables of approximately $30 million (before tax). On 1 August 2014 the company changed its policy of hedging outstanding US dollar payables from 50% to 80%, which mitigates the impact of the fall in the Australian dollar.
"Net debt at 31 December 2014 is forecast to be around $650 million, compared with $827 million at 30 June 2014 and $742 million at 31 December 2013. The lower forecast debt includes lower working capital levels following the closure of the Kurnell refinery, as well as the favourable impact of the lower crude price," Caltex added.
The switch from manufacturing (oil products) to import and distribution with the run down and closure of Kurnell can be seen in another record result from the company’s marketing business.
Caltex said its marketing division is expected to deliver record earnings before interest and tax (EBIT) for a second year in a row in 2014 with result of approximately $810 million, up 6% on a record 2013 result ($764 million).
"This strong result is expected to be achieved despite the loss of earnings from the Sydney bitumen business, which was divested in December 2013.
"Refining & Supply is expected to make an EBIT contribution of between $10 million to $30 million for the 2014 full year. This compares with an EBIT loss of $171 million for 2013, and a 2014 first half loss of $65 million. The 2014 forecast result has benefitted from the impact of favourable externalities, particularly in the fourth quarter of the year.
"A strong operating performance by the Lytton refinery enabled the refinery to take advantage of these favourable conditions.
"As previously announced, the Kurnell refinery was successfully shut down and terminal operations commenced in October, a significant milestone in the $270 million project to convert the historic refinery site to Australia’s largest fuel import terminal.
"The project remains on-time and on-budget with modest capex (around $50 million) remaining to be spent in 2015. The Kurnell refinery is forecast to generate a 2014 EBIT loss of approximately $75 million," Caltex said.
