Inside Refining NZ 2012 01 Inside Refining NZ 2012 Company side In profile The Refining Company Refining NZ and its staff are strongly committed 01 Company profile to being a good neighbour and protecting the Limited (Refining NZ) is New Zealand’s unspoiled local environment, forming strong only oil refinery and is proud to be a relationships with Government, iwi, community, 02 strategy business and conservation groups to achieve this strong contributor to both the local goal. All operations are carefully managed to avoid, 03 position in NZ’s fuel supply chain community and the national economy. remedy or mitigate any adverse effects on the environment, through environmental monitoring Situated at Marsden Point near Whangarei, the certified to the ISO 14001 standard. 04 nZ’s refinery refinery was commissioned in the 1960s and has since earned a reputation as one of Asia Pacific’s Striving to always improve safety and reliability, safest and most reliable refineries. Refining NZ has commissioned two significant 06 understanding our results projects in recent years – Future Fuels in 2005 and As a toll refiner Refining NZ processes a wide Point Forward in 2009. The Future Fuels Project 06 Reliability range of crude oil types sourced from domestic has allowed the refinery to produce cleaner fuels by and offshore markets to produce premium and providing the latest plant and equipment necessary to 06 Safety regular petrol, diesel, jet fuel, fuel oil, roading remove sulphur from diesel and benzene from petrol. bitumen and sulphur. 07 Environment Point Forward is also a significant step forward, including Following a significant upgrade and expansion 08 Income a substantial plant upgrade that has increased overall in the 1980s and continued investment in newer productivity and grown our business by around 15%. 10 Energy technologies in the last 20 years, the refinery now has a crude oil capacity of 135,000 barrels a day. In April 2012, shareholders approved an investment 11 Subsidiaries of $365 million in a project to replace the existing This allows Refining NZ to supply more than 70% semi-regeneration platformer unit with a Continuous 11 Production of all fuel products for the New Zealand market, with Catalyst Regeneration Platformer (CCR). The 13 Distribution almost half of all fuel production being sent to the replacement unit will provide significant energy Auckland Terminal located at Wiri, South Auckland benefits, and is expected to result in an uplift in 14 Growth via a purpose-built 170 kilometre pipeline, for storage Refining NZ’s GRM of circa US$1.10 per barrel and distribution. 14 Shareholder Communication (therefore increasing processing fees) and will enable The was deregulated in 1988. the Company to meet more of New Zealand’s petrol 15 People Today BP, ExxonMobil, Z Energy and Chevron are needs. The CCR is expected to be commissioned 15 Community key customers and significant shareholders in the by the end of 2015. refinery. The remaining 3,800 shareholders are a With a staff of around 390 (including Independent mix of institutional and private investors. Petroleum Laboratory Limited) and an extended team of local contractors, Refining NZ is committed to delivering on its promises and achieving its vision of Fuelling New Zealand’s Future.

Inside Refining NZ 2012 is designed to provide more detailed information regarding our operations and answers questions frequently asked by stakeholders seeking an understanding of our Company. 02 Inside 03 Inside Refining NZ 2012 Refining NZ 2012 Strategy Position in NZ’s fuel supply chain

Our purpose: Our vision: The Company is responsible for processing feedstock (crude oil and blendstock) into high quality transport fuels for our customers. Close to half of all finished product is distributed To be New Zealand’s Fuelling via the Refinery to Auckland Pipeline (RAP) with the remainder distributed via coastal shipping supplier of choice New Zealand’s to ports and by road to the rest of New Zealand. for oil products future

INTERNATIONAL MARKETS Our aims: We will have realised our vision when we achieve the following aims:

FEEDSTOCK PURCHASE AND DELIVERY TO REFINING NZ Ne

42.1 Mbbls w Z e For For For ALL Imported REFINING s aland SHAREHOLDERS CUSTOMERS STAKEholders product purchase 46% 44% 4% 6% and

delivery upp ly cha PRODUCT PRODUCT Deliver 15% Provide 50-80% Attract, develop COASTAL PIPELINE

DISTRIBUTION TO WIRI i ROACE of NZ products and retain n sustainably over by being the most talented individuals 26% 36% 35% 3% the business cycle. competitive source and business of supply in terms partners to sustain TRUCK of reliability, cost and grow the COASTAL TERMINALS WIRI TERMINAL LOADING EXPORTS and environmental business and be TerMINAL and footprint. recognised as a BUNKER New Zealand product market (~50.8 Mbbls) FUEL valued corporate Petrol (39%), Jet Fuel (16%), Diesel (37%), Fuel Oil (6%), Bitumen (2%) citizen locally, regionally and nationally. 26% 74%

Notes: V alues and percentages are actual Refining NZ production and market estimates for 2012. Values include petrol, diesel, jet fuel & kerosene, fuel oil and roading bitumen. MBBLS = Million barrels

Refining NZ NZ oil companies International companies 04 Inside 05 Inside Refining NZ 2012 Refining NZ 2012

Marsden Point | Jetties | Desulphurisation | Sulphur Wiri 01 05 07 Recovery Unit terminal The refinery has two jetties for Crude oil contains sulphur Three sulphur recovery plants berthing crude oil and product which must be removed to produce process the H S rich gas recovered NZ’s refinery 2 ships, carrying up to 125,000 clean low sulphur products that from the refining process. This tonnes of oil. The ships berth meet New Zealand’s high quality includes a SCOT unit (Shell Claus alongside the jetties and crude specifications. The refinery has Offgas Treatment) to lower the oil is pumped off or product is three desulphurisation units which sulphur dioxide emissions to the loaded onto ships. remove sulphur from diesel environment and to increase components and kerosene in sulphur recovery to 99.8%. Jetty Three catalyst filled reactors, producing The recovered sulphur is sold | on-specification diesel and jet fuel. to Ballance Agri-Nutrients for 02 use in fertiliser production. This jetty, commissioned during The Future Fuels plant was a $180 million investment commissioned 2009, is used to berth smaller Control Room ships (barges), which are capable in 2005. The plant removes sulphur | of carrying up to 5,000 tonnes from diesel to below 10 parts per 08 of fuel products. From this jetty million, and reduces benzene in The refinery operates 24 hours a finished product is loaded onto petrol to meet New Zealand’s world day and is controlled by shift teams 02 a barge which supplies directly class clean fuel specifications. of operators working from the to cruise liners and other ships control room. From their computer N in the Port of Auckland. A Block screens the panel operators 06 | monitor and control the many valves, pumps and equipment Crude oil This block of refining units | required for the refining operation. 01 03 storage includes the crude distillation unit and naphtha work-up plants. The crude pumped from the ships Blending and berthed at the jetties is discharged The first stage in the refinery | into a number of oil storage tanks. process is distillation, a process 09 products storage Our largest tank holds 80 million which separates the crude oil The process units produce a litres of crude. into the different fractions or number of component streams components. These are naphtha that are routed to tankage. These (for producing petrol), kerosene, Hydrocracker components are blended into | diesel components and a residue on-specification final products that 04 stream. These streams then are stored in product tanks before The hydrocracker is part of a pass to other units for further being pumped via the pipeline to number of processing units to processing. There are two Auckland, loaded onto ships for upgrade the residue stream from distillation units which between distribution to New Zealand ports 03 06 the distillation units into higher them have the capacity to process and onto road tankers supplying value products. The hydrocracker 18,000 tonnes of crude per day the Northland region. converts most of the residue (around 135,000 barrels per day). streams from the distillation units The $190 million Point Forward Pipeline to higher value petrol, jet fuel and Project, commissioned in 2009, | diesel components. This upgrading increased the capacity of one of 10 11 05 05 08 09 10 is by means of a catalytic cracking the distillation units from around The pipeline to Auckland runs process in four large reactors in the 60,000 to 95,000 barrels per day. underground from the refinery presence of hydrogen at a pressure to a terminal at Wiri near Auckland of around 140 bar. Hydrogen is The naphtha from the initial International Airport. Petrol, jet produced by reforming refinery distillation process is too low in fuel and diesel are sent down the gas streams in a catalytic process. octane for direct use in petrol. pipeline in sequential batches using 04 The unconverted part of the We need to make petrol at 91 pumps at both the refinery and residue stream is blended into and 95 octane to meet the two intermediate pump stations fuel oil products. specifications. After removal of at Wellsford and Kumeu. sulphur, the naphtha is passed through the platformer that has reactors filled with platinum | TE MAHI HOU 07 catalyst and the low octane 11 naphtha is converted to high This is where the future CCR unit octane platformate. A handful will be positioned. Two existing of platformer catalyst has a tanks will be demolished ahead surface area equal to about of foundation work due to three football fields. The current commence in 2013. semi-regeneration platformer will be replaced by the CCR by means of the Te Mahi Hou project. 06 Inside 07 Inside Refining NZ 2012 Refining NZ 2012

We network extensively with other enterprises Environment in Northland, New Zealand and abroad, and are continually benchmarking and learning from each HOW DO WE SAFEGUARD THE other’s experiences. It is important to keep our 07 | unspoiled ENVIRONMENT? Understanding safety messages fresh, and every year we provide a ‘menu’ of safety events and celebrations. Refining NZ operates under a number of resource Our safety record tells us that we are doing the consents granted by the Northland Regional Council right things, but three recordable cases in 2012 under the Resource Management Act 1991. On a means further work is required if we are to achieve day-to-day basis, our employees are focussed on our results a world-class safety performance. ensuring we operate within consent limits. Our Environmental Affairs team actively monitors and reports on our performance, as well as working with | WHAT PLANS DO WE HAVE IN PLACE our engineers and operators to ensure environmental 05 TO RESPOND TO SITE EMERGENCIES? considerations are built into the design and operation of our plant. Reliability HOW DO WE ENSURE INTEGRITY OF THE The emergency services team provides a response 03 | Refinery auckland pipeline (RAP)? to incidents 24 hours a day, every day of the year, Our people live and play in our beautiful coastal HOW MANY DAYS IN A YEAR IS THE on and around our facility. Ours is a New Zealand environment. Some have ancient ties to our immediate | There is a statutory requirement to maintain a PLANT AVAILABLE FOR PROCESSING? Fire Service Registered Industrial Fire Brigade with environs through their whakapapa. Each year we ‘down 01 Certificate to Operate the RAP and this certificate 13 highly trained full-time staff specialising in medical, tools’ to participate in World Environment Day – taking Refining NZ operates around the clock throughout requires regular audit of our Safety and Operating Plan rescue and fire situations. The team is supported by action to enhance our environment through beach the year. Shutdowns of some operating units take by an accredited inspection body. Regular inspection 40 volunteers from across the refinery. All of our plant clean ups and increasing our understanding about what place periodically for maintenance, inspection and other of the RAP, using state of the art technology, provides operators are trained first responders and participate we can do to minimise our impact on the environment. activities such as catalyst regeneration or replacement. accurate data on its condition and any remedial works in live fire training and regular desktop exercises as We also work actively with local community groups required are planned and executed. Maintenance Operations staff and engineers continually monitor well as refreshing and updating our pre-incident plans. and Iwi to inform them of our activities and measures activities are planned and scheduled in accordance with the performance of all units operating within the plant These are developed from studies to give critical to protect the environment. and plan for shutdowns over a period of several years. a focus on Reliability Centred Maintenance practices. information for the first 20 minutes of an emergency. Planning for shutdowns is complex. All areas of the Safety Management Studies at five yearly intervals Our duty managers are trained incident controllers and business must be mobilised to ensure that all planned ensure that areas of sensitivity are fully recognised WHAT MEASURES DO WE undertake co-ordinated incident management refresher | maintenance (and any emerging work) is completed and tracked. Designation of the RAP means that we are 08 HAVE IN PLACE FOR OIL SPILLS? notified of any planned changes to the surrounding land sessions on a quarterly basis and participate in our safely, on time and within budget, while ensuring that We are highly aware of the risk of oil spills into and this, along with regular patrols, ensures that there annual multi-agency exercise which includes amongst sufficient product stocks are held to meet customer Whangarei Harbour and we take all possible steps to is no unauthorised third party activity that could impact other agencies, Police, St John Ambulance, Maritime demand during the shutdown period. ensure the harbour environment – including the marine the integrity of the pipeline. NZ, Department of Conservation and the New Zealand The following shutdowns are planned for the next Fire Service. Our Leadership Team are trained in crisis reserve opposite the refinery and kaimoana gathered four years. The numbers represent in which quarter Plans are in place to respond to any unplanned management processes in order to support the by the local people are protected. shutdown of the RAP. Multi-agency emergency of the calendar year the shutdown is planned. emergency management and response teams. Oil and fuel tankers visiting Refining NZ (including exercises are performed to ensure all parties are coastal tankers Awanuia, Kakariki and Torea) are 2013 2014 2015 2016 prepared, and critical spare parts are stored and double hulled; in fact all tankers visiting New Zealand Quarter Quarter Quarter Quarter ready for use. HOW DOES REFINING NZ 06 | DEMONSTRATE SAFETY LEADERSHIP have been double hulled for at least the last six years. Crude Distiller 4 2 1 - For more information on the RAP, refer to OUTSIDE THE COMPANY? However, should an oil spill occur, Refining NZ is part Hydrocracker 1 2 - 1 question 27. of the Northland Regional Oil Spill Response team, Refining NZ places significant emphasis on Platformer Catalyst 4 - 1 - which ensures that, dependent on the scale of any promoting safe working practices. We are a founding spill into the harbour, we are capable of mobilising Diesel Hydrotreater 4 - 1 - member of the Business Leaders Health and Safety an appropriate level of response. We run monthly Safety Forum, a national initiative driven by the Minister of exercises to ensure the oil containment equipment Labour to help raise the level of workplace safety in located on our site is fully functional, and staff are HOW DOES THE COMPANY ENSURE WHAT do we mean by OUR New Zealand businesses. The forum comprises Chief | PLANT RELIABILITY AND INTEGRITY? | trained and capable of responding. Each year we 02 04 SAFETY PERFORMANCE? Executives from New Zealand’s leading businesses. participate in a regionally co-ordinated exercise and Refining NZ has a comprehensive asset reliability and Our vision is that every person on our site goes We are also a proactive contributor to Government these have included simulations of an oil spill reaching integrity management focus which has, over the years, Safely Home, Every Day. We have mature safety sponsored independent review of workplace health the beach at Marsden Point. We are putting in place continued to be highlighted as a key business strategy. systems in place, and everyone working on our site and safety systems. further measures to minimise the potential for the Continuous improvements have been achieved by is clear about our cardinal safety rules as well as We are at the forefront of establishing a network escape of oil from the site in the form an emergency developing and improving a number of reliability, their personal accountability for their own and their of process safety experts in New Zealand. The need spillway from our stormwater basin. inspection and maintenance strategies. In addition, workmates’ safety. Over several years we have been for this has been underscored by the tragedy at the we have a project team focused on Reliability, Integrity executing a Safety Action Plan that aims to ingrain mine. and Process Safety (RIPS+) and our multi-discipline positive safety behaviour. specialists are carrying out these studies to identify and Regionally we have worked with ACC and the improve our understanding of major hazards and risks Our leaders are visible in the field, talking to workers Ministry of Business, Innovation and Employment to to our business. This focus will continue to improve our about safety on the job. Intervention in unsafe further establish a Northland health and safety group reliability, lead to a safer plant, increased operational behaviour is encouraged and recognised. Supervisors to lift performance and promote health and safety availability, and improved environmental management. are specifically trained in safety leadership. across the region. In 2012 our unplanned downtime was 0.6%, which We invite visitors to experience our safety culture, was a world-class performance. and welcome their feedback as an opportunity for us to improve. 08 Inside 09 Inside Refining NZ 2012 Refining NZ 2012

Singapore and Refining NZ Margins Exchange Rate, US Dollar vs NZ Dollar US$/bbl

0.26 2.30 1.00 8.20 8.44 8.17 8.96 4.15 6.16 6.12 5.77 US$5.77 0.80 PER barrel 0.60 average margin 0.40 0.20

0.00 Income Other Income 2004 2006 2008 2010 2012 9 % 1) O (7 % 2005 2006 2007 2008 2009 2010 2011 2012 01 ME THE 20 WHERE DOES THE COMPANY % 2 CO R 11 18 L IN ) % ( TA | GET ITS INCOME FROM? EN 09 8 I R 7 IR 1 D 3 % WHY DOES THE PROCESSING W IS REFINING NZ MARGIN INDICATOR MARGIN As a toll refiner we have two main operating income T | R I (7 MARGIN CAP (SINGAPORE) AGREEMENT BASE THE COMPANY’S B 5 13 streams – processing fee income and pipeline fee U % T I 2 REVENUES ON A SHARE OF THE O 0 income (part of the distribution revenue). Processing N 1 1

R ) REFINING MARGIN? E fees are paid by Refining NZ’s customers for refining V E

N their crude oil and other feedstock into final products, U The processing agreement that Refining NZ has E The indicator margin is a simplified margin for a and are set at a percentage of the refining margin with its customers represents an arrangement generic complex refinery in Singapore, with simplified (see question 11) generated by Refining NZ. Pipeline whereby there is an incentive for Refining NZ to product yields and Arab Light as the only feedstock. fees are paid by Refining NZ’s customers for maximise the value from the crude oil and other Until 2010 the BP indicator margin was used in the pumping refined products via Refining NZ’s pipeline feedstock that the customers provide. graph, however BP has changed the calculation. to Auckland, and are set at a market-related price 2011 This has been replaced by a Refining NZ calculation. per volume pumped. Fees are also charged for The principles of the processing fee formula Refining NZ’s margin follows the same trend as the other services, such as for producing special grade were established in 1995. It is based on sharing the indicator margin, but is different due to Refining NZ’s products and for blending of imported components. refining margin according to the risks and costs that 2012 location and differences in feedstock/product mix. Refining NZ and the customers respectively bear The crude oils and feedstocks that are refined into within the total supply chain. transport fuels at Marsden Point are owned by HOW IS REFINING NZ’S PROCESSING Refining NZ’s processing fee is calculated as 70% of the customers. | FEE INCOME CALCULATED AND WHO ARE REFINING NZ’S CUSTOMERS? 12 the notional refining margin, for the reasons outlined Total operating income generated by the Group for | WHAT FACTORS IMPACT THE in question 12. The processing arrangements are the year ended 31 December 2012 was $278 million 10 COMPANY’S INCOME? intended to provide Refining NZ with sufficient funds (2011: $291 million), analysed as follows: Refining NZ’s customers are Z Energy (marketing for new investments, a return to shareholders and The processing fee is set at 70% of the refinery under the Z brand), the local subsidiaries of BP, provide the user companies with sufficient incentive margin generated, subject to a fee floor and margin Chevron (marketing under the brand) and to optimise their use of Refining NZ facilities. cap. This reflects that Refining NZ’s customers bear ExxonMobil (marketing under the Mobil brand). Sources of Income the risks and associated costs of crude purchasing, The current arrangements have stood the test These customers all refine crude oil at Refining NZ the finance and currency costs and risks associated of time enabling Refining NZ to invest significantly under separate processing agreements. Refining NZ % with maintaining crude, feedstock and product and encouraging our customers to fully utilise the 87 (8 % 11) 8 2 also sells liquid sulphur to Ballance Agri-Nutrients % 0 OIL REF 01 2 ININ 1) inventories, shipping and demurrage risks and facilities. We review the arrangements to ensure % (12 G and carbon dioxide to Air Liquide, both products guaranteeing a minimum processing fee. Refining they remain reasonable to shareholders and are 3 ER being by-products from the processing of crude oil. 1 TH O NZ’s income for the period is then converted to sustainable. The last external review was carried New Zealand Dollars using the average exchange out in 2012 by independent industry consultants WHAT IS THE ‘MARGIN’? rate for that period. Purvin & Gertz Inc. They concluded that the | processing fees charged by Refining NZ at 70% of 11 The processing fee formula is: the gross margin (with defined minimum total fees This is a notional refining margin generated by and maximum gross margin cap) have been generally Refining NZ and is calculated as the typical market Processing fee (NZ$) = 70% x margin (US$/bbl) x reasonable to all parties, relative to the risks borne value of all the products produced, minus the typical feedstock processed (bbl) / exchange rate (US$/NZ$) by Refining NZ and their customers. market value of all the feedstock processed. When The processing fee is therefore impacted by product divided by the volume of feedstock processed, it is and feedstock prices in the international markets, A review of processing arrangements was also expressed in dollars per barrel (bbl), typically US$ volume of feedstock processed and the exchange rate. carried out in 2010 and 2011 by the Independent 2011 per bbl because international prices are quoted in Directors. The results of the review were reported US$. The market value of products is determined Refining NZ’s processing fee income is the sum of to shareholders via the NZX, the company website by using quoted prices for the products in Singapore, the customers’ processing fees. Each customer’s and presented to the Board. processing fee is different because they each process 2012 which is the trading hub for Asia Pacific. To this is added the typical freight cost to New Zealand (import different volumes and types of feedstock, and make parity value) plus any product quality premia. The different volumes of products. value of feedstock is determined by using the market value for crude oil and other feedstock at the point of purchase, plus the typical cost of freight to the refinery (landed value). 10 Inside 11 Inside Refining NZ 2012 Refining NZ 2012

The opinion expressed by both reviews conducted Energy by the Independent Directors was that management had exercised an appropriate degree of professional WHERE DOES THE COMPANY care and diligence to ensure that the processing fee | GET ITS ENERGY FROM? and other contractual arrangements remain in the 17 best interests of the Company. In their opinion, Refining NZ consumes energy in the forms of 42.1 the processing agreements support the ongoing electricity and fuel. competitiveness of the Company and provide Electricity is supplied via the New Zealand grid shareholders with commensurate returns over and is used to drive pumps, compressors and other million barrels the business cycle. electrical equipment. The refinery’s demand for Management is tasked with keeping the processing electricity is approximately 32 MW, which makes us crude intake fee and other contractual arrangements under review, one of the larger users of electricity in New Zealand. to ensure that they remain in the best interests of We also use a variety of fuels, consumed in furnaces the Company. The Independent Directors review to provide the heat and steam required for the refining the status of the processing arrangements with operation. Most of the fuel comes from our crude oil Subsidiaries Production management annually, and consider whether an in the form of fuel gases generated in the process external review of the arrangements is needed. and heavy liquid fuels, asphalt and fuel oil. The | DOES THE COMPANY HAVE A FINANCIAL | HOW MANY BARRELS OF CRUDE DOES remainder of the fuel is imported natural gas. The 19 INTEREST IN ANY OTHER ENTITIES? 20 THE COMPANY PROCESS IN A YEAR? refinery consumes around 900 tonnes of fuel per WHAT IS THE MARGIN CAP AND The Independent Petroleum Laboratory Limited Close to 40% of New Zealand’s total energy needs | day – approximately 6% of crude throughput. 14 THE FEE FLOOR AND WHY HAVE THEM (IPL) was established in July 1999 and is 74% are met by oil products from Marsden Point, so IN THE PROCESSING AGREEMENT? owned by Refining NZ. It is New Zealand’s largest Refining NZ has an important role to play in helping The margin cap applies for each customer separately fuel testing laboratory. New Zealand meet its future energy challenges and and is set at a maximum of US$9 per barrel per SOURCES OF ENERGY be even more self-reliant for transport fuels. IPL operates as an independent laboratory, utilising calendar year. The floor provides income protection knowledge and technology to provide sound, innovative Refining NZ processes typically between 37 and when refinery margins and/or the exchange rate are 13 % % N solutions to the analytical needs of the petrochemical 42 million barrels of crude oil and other feedstock per CITY ATU unfavourable. The fee floor comes into effect if the 5 TRI RA 1 EC L G and related industries. year. The actual volume in any one year depends on EL A total processing fee for a calendar year does not S the impact of shutdowns and the type of feedstock. LT exceed a minimum value. This value will be close IL % A IPL provides fuels, biofuels and environmental % O H L P to NZ$122 million for 2013 and is subject to annual E 6 S 2 U A analysis and testing to a wide range of industry clients F 6 R Producers Price Index and Labour Cost Index E 4 F based in New Zealand and the South West Pacific. I % 2012 2011 2010 2009 2008 based escalation. N E R Further information is available on the website at:

Y

G www.ipl.co.nz 42,131 A Intake 41,220 38,952 37,935 39,194

HOW DOES THE VOLATILITY OF S (bbls ‘000)

|

THE INTERNATIONAL OIL MARKETS Intake 15 AFFECT THE COMPANY? (tonnes ‘000) Movements of crude oil prices are often mirrored Processing intake 5,493 5,426 4,998 4,807 4,987 by product prices, hence crude price volatility 2012 Blending intake 137 89 197 267 241 may not directly affect the refinery margin. The

movement of product prices relative to oil prices TOTAL INTAKE 5,630 5,515 5,195 5,074 5,228 affects the refinery margin. While crude oil price

movements are fundamentally driven by supply and demand for crude oil, refinery margin movements WHERE DOES THE CRUDE OIL are fundamentally driven by supply and demand for HOW IMPORTANT IS | | COME FROM? refining capacity. Because Refining NZ’s margin is 18 ENERGY EFFICIENCY? 21 based on Singapore prices plus freight plus premia Energy efficiency improves our competitiveness Refining NZ’s refinery configuration allows for a for quality, changes in international freight rates and against Asian peer refiners, contributes to an relatively flexible crude diet. Just over half of the crude in quality premia also affect Refining NZ’s margin. improved financial performance and reduces oil comes from the Middle East (typically Saudi Arabia, our environmental impact. United Arab Emirates and Qatar) and the rest from Asia Pacific (Malaysia, Indonesia, Brunei, Australia WHO ARE THE COMPANY’S We are committed to making energy and emissions | COMPETITORS? and New Zealand). Some crude oil from other 16 improvements under the Negotiated Greenhouse regions (Africa, Europe and Russia) is also received. Refining NZ competes against imported products Agreement (NGA) we have with the Crown, and New Zealand produced crude oil is more suitable for we continue to meet our NGA obligations. to New Zealand ports. Most imports are sourced refineries in Australia so Refining NZ processes only out of Singapore, Japan, South Korea and Taiwan, The Te Mahi Hou project will significantly improve some of the New Zealand produced crude oil. and therefore Refining NZ competes with export energy efficiency and lower Refining NZ’s carbon refineries in the Asia Pacific region. dioxide emissions per litre of fuel produced by 14%;

which equates to 120,000 tonnes of CO2 per year. 12 Inside 13 Inside Refining NZ 2012 Refining NZ 2012 33.6 420,000 million barrels litres per hour RECORD DISTILLATE OUTTURN rap maximum throughput

Refining NZ Crude Oil Origin for 2012 WHAT PRODUCTS ARE MANUFACTURED Distribution WHAT IS THE RAP? Vol % 23 | BY THE COMPANY? 27 | % 3 % HOW ARE PETROL AND OTHER 3 % Refining NZ produces petrol, diesel, jet fuel and The Refinery to Auckland Pipeline (RAP) is owned 5 OT | NZ HE PRODUCTS MANUFACTURED AUS R fuel oils as transport fuels. Other products include 26 and operated by Refining NZ. It is a multi-product T . roading bitumen, sulphur and light naphtha (exported BY THE COMPANY DISTRIBUTED 3 pipeline that runs mostly underground to a terminal A 8 as petrochemical feedstock). Some of the carbon S % THROUGHOUT THE COUNTRY? at Wiri, near Auckland International Airport. It operates IA dioxide produced is recovered for use in soft drinks. continuously and product batches are pumped in Petrol, diesel and jet fuel are pumped via the RAP to a succession. The RAP supplies most of Auckland’s terminal at Wiri in South Auckland to feed Auckland and petrol, diesel and jet fuel needs, with additional HOW MUCH PRODUCT IS parts of the Waikato. Petrol and diesel are pumped to a | product trucked from Wiri into the Waikato region. 24 MANUFACTURED IN A YEAR? truck-loading terminal adjacent to the refinery which supplies Northland. Petrol, diesel, jet fuel, fuel oil and Outturn tonnes ‘000 bitumen are shipped to ports via coastal tankers to HOW MUCH PRODUCT CAN BE PUMPED supply the rest of New Zealand. Naphtha and some 28 | THROUGH THE RAP PER HOUR? 2012 2011 2010 2009 2008 fuel oil are exported. Sulphur and some bitumen are The throughput is typically around 320,000 litres per loaded into road trucks at the refinery. Petrol 1,297 1,329 1,332 1,386 1,484 hour up to a maximum of 420,000 litres per hour. That 2012 Light Naphtha 66 15 34 13 28 is enough fuel to fill the tanks of 8,000 cars every hour. Jet Fuel and Distribution Kerosene 1,045 1,048 990 869 892 Mass % Pipeline Revenue and Throughput Diesel 2,010 1,826 1,772 1,581 1,615 5 % NZ$ million and mbbls MIDD 2 2012 2011 2010 2009 2008 LE EAST Fuel Oil 710 742 529 695 674 Roading Bitumen 117 116 148 119 113 Pipeline 41.7 44.0 45.2 46.7 46.5 26.9 27.8 30.2 27.5 22.0 28.8 26.3 26.2 Sulphur 33 40 32 38 38 Truck Terminal 4.1 4.3 4.5 4.8 4.7 35 20 HOW BIG IS A BARREL OF CRUDE? Coastal Shipping 46.4 44.4 46.5 42.3 43.3 | 28 16 22 HOW MUCH OF THE COUNTRY’S Exports 6.5 6.1 2.1 5.1 4.2 One barrel is 159 litres, or approximately three 25 | TRANSPORT FUELS ARE PRODUCED Other 1.3 1.2 1.7 1.1 1.3 21 12 times larger than the average fuel tank of a car. AT REFINING NZ? 14 8 NZ$ (MILLION)NZ$

7 4 THROUGHPUT (mbbl) Coastal shipping destination for 2012 One barrel of crude typically makes: Refining NZ’s share of nz’s transport fuel supply % 0 0

100 0.7 25.5 7.4 3.0 14.0 11.0 17.5 5.2 8.3 7.4 2005 2006 2007 2008 2009 2010 2011 2012 26.0% PETROL 75 % 1.5 PIPELINE REVENUE THROUGHPUT NAPHTHA % 19.5 50 0.2% JET FUEL SULPHUR 25 | CAN THE CAPACITY OF THE % 29 RAP BE INCREASED? 35.7 0 DIESEL Utilisation of the RAP is currently around 80% of % capacity. There are two avenues available to further

1.7 2005 2006 2007 2008 2009 2010 2011 2012 BLUFF

ROADING NAPIER expand the capacity of the RAP to meet increased TIMARU NELSON BITUMEN % DUNEDIN demand. The first is the potential to use a Drag 10.9 LYTTELTON

FUEL OIL Reducing Agent in petrol and diesel, which could % JET FUEL DIESEL PETROL TOTAL NEW PLYMOUTH 4.5 MT MAUNGANUI potentially increase the capacity by around 18%. CONSUMED The second avenue is to install an additional pump AS FUEL NZ fuel demand data to 2011 from Ministry of Business, AUCKLAND-WYNYARD at one of the intermediary pumping stations and this Innovation and Employment’s Energy Data File and 2012 fuel demand estimated by Refining NZ. could further increase capacity by up to around 20%. 14 Inside 15 Inside Refining NZ 2012 Refining NZ 2012 $ Kaitiakitanga 365 (guardianship) million guides our approach to Approved CCR Project protecting the environment

Growth shareholder Communication People Community HOW DO WE GROW OUR BUSINESS? why is refining nz no longer REFINING NZ’S AIM IS TO HOW DID REFINING NZ SUPPORT 30 | 32 | included in the 50? 34 | BE AN EMPLOYER OF CHOICE. 36 | THE COMMUNITY IN 2012? As New Zealand’s only oil refinery we have the In December 2012 a new liquidity test adopted by WHAT DOES THIS MEAN? We are committed to contributing to the economic, opportunity to grow as demand increases. Our aim the New Zealand Stock Exchange saw the Company An employer of choice is a successful organisation environmental and social sustainability of our local is to be this country’s supplier of choice for oil products drop out of the NZX 50. Under the absolute liquidity providing challenging and stimulating careers for community and look to develop established and to grow with our customers through innovation, rules the Exchange requires a company to trade at least talented individuals while offering highly competitive partnerships that are mutually beneficial. understanding their strategic interests and tapping 2.5% of its six monthly average market capitalisation employment conditions (for example remuneration, Our community programme is concentrated across potential synergies and opportunities. Our target is over a six month period. Refining NZ fell short of this holidays, development opportunities). three areas: to supply up to 80% of New Zealand’s transport fuel target with trading at around 2.2%. (diesel, petrol, jet fuel). ff helping talented young Northlanders to achieve This decision bears no relation to the Company’s WHAT STEPS IS REFINING NZ TAKING their goals We are continually looking to improve our market capitalisation, the value of which places us near 35 | TO BECOME AN EMPLOYER OF CHOICE? competitiveness against imports and develop options the middle of the NZX 50. The fact that our four largest ff supporting community organisations to meet We are focussed on improving our visibility in the to grow our business sustainably for the future. shareholders are also customers provides Refining NZ their environmental aspirations employment marketplace, especially through our a strong base to work together for the benefit of the ff providing assistance for the running of essential The Point Forward expansion grew our production partnerships with leading New Zealand universities. business and ultimately all shareholders. We consider community services or facilities. by around 15% enabling Refining NZ to meet around our small ‘free float’ provides New Zealanders an We benchmark our employment conditions 74% of the country’s demand. opportunity to invest in infrastructure that is vital to against our peers to ensure we remain competitive. In the area of education we continue with our commitment to help young Maori students. In April 2012 shareholders approved a $365 million this country’s energy future. We also offer opportunities for professional and The funding to Patuharakeke scholars will enable CCR Project that will increase our share of personal development to our people, in particular six students with ties to our local iwi to continue New Zealand’s petrol demand from around 55% to focusing on providing future leaders the opportunity WHO ARE REFINING NZ’S and complete their tertiary studies. Our support for around 65%. Te Mahi Hou will provide a significant to develop their skills in the workplace. | SHAREHOLDERS? the Mid Northland Science Fair provides year 6-13 step towards fulfilling the Company’s strategic aims. 33 Refining NZ’s 280 million shares are held by five major Refining NZ has been recognised as a Top Company science students the opportunity to test their shareholders; BP (23.66%), ExxonMobil (19.20%), for Leaders in a global study of leadership practices research and investigative skills. WHAT IS THE NEW VENTURE – Z Energy (17.14%), Chevron (12.69%) and Garlow by HR global, Aon Hewitt in the last two studies, | TE MAHI HOU PROJECT? completed in 2009 and 2011. We support the local environment through our 31 Management Incorporated (8.12%), as well as sponsorship of the Bream Head Conservation Trust. The CCR project involves replacing the existing approximately 3,800 private and institutional investors. The Trust is working to enhance the special environment 1960s Platformer, which would otherwise have around Bream Head through pest eradication, native required a $105 million spend to extend its operational planting and environmental education. life. The CCR will enable crude oil to be processed into fuel products more efficiently, and also increase the Refining NZ supports safety on the water through amount of crude processed each year. A progress the funding we provide to the Whangarei Volunteer report on the project is provided on page 25 of the Coastguard. In 2012 this essential service saw on Annual Report. the water assistance provided to close on 600 Northlanders. We also support the work of surf lifesaving crews with funding for the day-to-day running costs of the Ruakaka Surf Lifesaving Club. We are a foundation supporter of the Northland Events Centre at Toll Stadium. This has become a community asset for Whangarei and is home to Northland Rugby, a venue for community functions and a range of major sports events. As a major employer in the region we continue to support the development of business excellence through sponsorship of the Northland Business Excellence Awards. 16 Inside Refining NZ 2012 Our environmeNt

A regular focus of our activities to mark World Environment Day has been the planting of Spinifex and Pingao grasses to help strengthen the sand dunes surrounding the refinery. The dunes offer a natural protection against the sea and are also home for a diversity of wildlife, including nesting seabirds. Since 2008 over 4,000 Spinifex and Pingao have been planted by refinery staff and contractors. Private Bag 9024, Whangarei 0148, NZ T: +64 9 432 8311, F: +64 9 432 8035 E: [email protected] www.refiningnz.com