By Angela Macdonald-Smith
Feb. 20 (Bloomberg) -- Caltex Australia Ltd., the nation’s biggest oil refiner, will revert to “more modest” investment over the next three years and scrapped its final dividend payment citing a weaker economic outlook.
Spending will drop to about A$300 million ($192 million) this year, down from more than A$400 million in 2008, and fall to about A$250 million the next two years, Des King, managing director of the Sydney-based company, said today. Caltex fell to a two-week low after saying it won’t pay a second-half dividend because of a loss in the period.
Caltex Australia’s production of gasoline, diesel and jet fuel slipped 10 percent last year because of unplanned closures at its two refineries near Sydney and Brisbane, which boosted costs. Crude-oil prices traded in New York have slumped 73 percent from a record $147.27 a barrel in July, causing losses for Caltex on the value of its inventories.
“The capex coming down is a good thing for them,” said Lafitani Sotiriou, an analyst at Southern Cross Equities Ltd. in Sydney. “They set out two or three years ago to have a massive capex spend of over A$1 billion over three years and a lot of those projects are coming to fruition.”
Caltex Australia, half-owned by Chevron Corp., slumped as much as A$1.04, or 11 percent, to A$8.56 on the Australian stock exchange after the dividend cut. The stock was at A$8.62 at 12:53 p.m. local time. The drop compared with a decline of as much as 2 percent in the exchange’s benchmark index.
‘Difficult Decision’
Scrapping the final dividend “was certainly a difficult decision and we knew that some of the shareholders might be disappointed,” King said in a telephone interview. “It goes back to our conviction to maintain good cash flow and a strong balance sheet. As we look at 2009 and the uncertain times globally, conservatism around cash we think is important.”
Caltex expects to spend A$50 million this year completing construction of a diesel unit at the Lytton refinery near Brisbane that will enable the company to meet stricter grades for sulfur in diesel that came into effect in Australia on Jan. 1. That will complete a total investment at the company to meet cleaner fuel standards of between A$800 million and A$850 million, King said.
The diesel unit is due to start production in the second quarter at a cost of about A$320 million, up from an original budget of A$250 million.
Caltex has the option of delaying or trimming other planned spending should the economic outlook worsen, King said.
Profit Plunges
Full-year net income plunged 95 percent to A$34 million as production fell and a drop in the price of crude oil cut the value of stockpiles, the company said earlier in a statement to the exchange. Operating profit, which excludes changes in the value of stockpiles, fell 58 percent to A$186 million in the year ended Dec. 31, in line with the company’s forecast last month.
“Caltex’s financial performance in 2008 was impacted by the unprecedented decline in the Australian dollar and crude price, and the impact of lower refinery production,” the company said in the statement. “Caltex operates in a highly competitive market.”
The company had an operating loss of A$10 million in the second half, down from a profit of A$150 million a year earlier. Full-year sales gained 24 percent to A$23.6 billion.
Production of transport fuels should rise this year to more than 10 billion liters, even with “major planned maintenance,” King said. The catalytic cracking unit at the Kurnell plant near Sydney will be halted for maintenance in March, about two months earlier than planned, while about half the Lytton plant will be shut for maintenance in the third quarter, he said.
Editors: John Viljoen, Ang Bee Lin.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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