New Zealand Refining Co. Ltd. (NZR.NZ) said Tuesday its net profit in the year to Dec. 31 fell sharply as margins shrank drastically in the second half of the year.

The company reported a net profit of NZ$23.6 million in the 12 months to Dec. 31, down from NZ$124.9 million a year ago on revenue of NZ$250.5 million against NZ$397.8 million.

In December, the country's only oil refiner forecast full-year net profit would be in a range of NZ$10 million to NZ$20 million given the tough operating conditions.

Chairman David Jackson said the result was disappointing although widely anticipated "given the volatile market conditions experienced in the second half of 2009."

Jackson said conditions were dominated by the global financial crisis which saw demand for oil products falter just as new refinery capacity had come online and the resulting oversupply has continued to depress refiners' margins.

"To put this into context, at the beginning of the year the company's refining margin was around US$12 per barrel but by the end of the year this margin had reduced to around US$1 per barrel," he said.

Jackson said the situation was exacerbated by the strengthening New Zealand dollar which resulted in lower processing fee income.

While he said there has been a "slight improvement" in margins from late December through January 2010 "the supply/demand fundamentals have not changed sufficiently to expect a sustained recovery in refinery margins at this stage."

New Zealand Refining, partly owned by units of the world's oil majors, refines around 70% of the country's fuel and uses spare capacity to sell products internationally.

Both a 19.2% interest held by Exxon Mobil Corp. (XOM) and a 17.2% stake owned by Royal Dutch Shell Plc (RDSA) are up for sale. Shell's stake is in the final stages of sale to a consortium led by New Zealand utilities investor Infratil Ltd. (IFT.NZ), which has agreed in principal to buy Shell's downstream distribution and retailing assets.

Other major stockholders include BP Plc (BP) with a 24% stake and Chevron Corp. (CVX) with 12.7%.

Jackson said company directors had resolved not to pay a final dividend due to ongoing uncertainty of world refining margins, continued exchange rate volatility, a need for NZ$44 million in non-discretionary capital expenditure during 2010 and an expected change in shareholders.

-By Rebecca Howard, Dow Jones Newswires; 64-4-471-5990; rebecca.howard@dowjones.com
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