NZRC, which owns and operates the Marsden Pt refinery south of Whangarei, yesterday reported a pre-tax operating profit of $NZ52.5 million, which was "significantly ahead of budget", though comparable to the 2002 operating result after taking into account the expensing of $NZ5.5 million of initial costs relating to the $NZ180 million Future Fuels project.

"This has been supported by operational excellence, high plant availability and consistently high margins particularly in the second half of 2003. These positive factors more than offset adverse exchange rates and very high energy costs," said NZRC chairman Ian Farrant.

However, 2004 would be a challenging year as a major planned shutdown and continuing unfavourable exchange rates were expected to curtail results.

As well, NZRC's record of paying a very high percentage of profits as dividends might change as the company progressed through both the construction phase of Future Fuels and the prevalent high exchange rate regime, Farrant warned

The month-long planned shutdown, for maintenance and catalyst changes, offered the opportunity to construct some of the Future Fuels "tie-ins". However, apart from the income loss, the additional cost compared to a normal year would be around $NZ14 million plus $NZ8.9 million required for catalyst replacement.

Later in the year, operating synergies would decrease due to changes in fuel specifications resulting in the need to process more expensive, low sulphur crude oil than before. However, following the start-up of Future Fuels in the third quarter of 2005, this penalty would disappear.

The Future Fuels Project - which will enable the refinery to produce low-sulphur diesel and low-benzene, low-sulphur and low-level aromatic gasoline to meet new national transport fuel specifications - was progressing well, Farrant said.

Main contractor Foster Wheeler had ordered over 95% of all equipment and a refinery tank had been demolished, with the site being prepared for the start of civil works - foundations, drainage, cabling - early in 2004. "The directors are very pleased with progress to date," added Farrant.

"Significant cash outflows" - mostly from bank loans and retained earnings - would be used to pay for Future Fuels.

Shares in the listed company are tightly held, with Shell, BP, ExxonMobil and Caltex and Canadian investment company Emerald Capital Holdings owning about 87% of all shares.