High petrol prices are 'awful for everyone', says Z Energy CEO who doesn't believe peak oil has been reached yet

High petrol prices are 'awful for everyone', says Z Energy CEO who doesn't believe peak oil has been reached yet

By Gareth Vaughan

Z Energy would prefer to see petrol prices below the historically high levels of more than NZ$2 a litre which they've been at this year, and the company's chief executive officer doesn't believe peak oil has been reached yet.

Speaking to interest.co.nz in a Double Shot interview, Z Energy CEO Mike Bennetts said high fuel prices, with petrol currently above NZ$2 a litre, were "awful for everyone."

"Consumer demand drops off. I guess the price point we see as being important is about $2 a litre and prices have gone through that twice, once in 2008 and again earlier this year and petrol demand drops off by about 5%," said Bennetts.

"That's 5% less sales that we make so it obviously affects us economically. We don't have a vested interest in prices being high because we don't produce oil, we don't have any interest further up the value chain."

"So because we don't have that interest further up the value chain and we're aware of the consequence on our customers, our preference actually is for lower prices," said Bennetts.

'Not at peak oil yet'

Asked for his views on peak oil, the concept that at a certain date the maximum level of global petroleum extraction is reached, from which the rate of production starts a terminal decline, Bennetts said peak oil was an "interesting one."

 I personally don't think we're at peak oil," said Bennetts. "I think even if I was wrong, however, there are different dynamics that drive things. So for example, 20 years ago the United States predicted they would run out of (natural) gas. Right now they've got 100 years worth of gas."

"So there are things that just happen by way of technology break throughs or further exploration. I think there's also the other side of that which is shrinking demand, or moving demand, as people get more into public transport and all that stuff."

Whatever happened in the future Z was "here to stay,"striving to satisfy customers' energy needs for "decades."

And Bennetts said Z Energy was just that, an energy company. If other fuels or technologies super seeded petrol and diesel, Z was open to selling and promoting them.

"We're not called Z Hydrocarbon Fuel Distributor," Bennetts said. "We're actually in the energy business. We actually see ourselves meeting the transport needs of people on the move. At the moment that happens to be hydro carbon that comes from oil, it could equally be gas, it could equally be electrons, it could be biofuels," Bennetts added.

"So we're very much open to exploring that space and we think by being local and more nimble than our overseas competitors, we can actually jump onto things and satisfy latent and then growing consumer demands around that stuff before anybody else."

As New Zealand is Z's only market, Bennett said it should be able to innovate and do research and development in a way that's different to its main competitors.

Bought from Shell, Z competes with the global big boys

Bought as global giant Shell's New Zealand downstream, operations (or fuel retail and distribution business), for NZ$696.5 million in April last year by Infratil and the New Zealand Superannuation Fund, the business is being rebranded as Z following market research on 17,000 people. As Bennetts puts it, this was the equivalent of stopping everyone in Ashburton and asking them questions about the company.

Z has also just opened its second retail bond offer, seeking to raise up to NZ$150 million to reduce bank debt. See more on the bond offer here.

Z consists of a 17.1% stake in Marsden Point oil refinery operator the New Zealand Refining Company, a 25 % stake in Loyalty New Zealand which runs Fly Buys, some 220 petrol stations, about 100 truck stops, plus pipelines, terminals and bulk storage terminal infrastructure around the country. Z is licenced to use the Shell brand until June 30, 2012 by which point all its petrol stations and truck stops will be rebranded as Z Energy.

Through its petrol stations Z is looking to shake up the retail fuel market where it has about 30% market share and its major competitors are BP, Caltex owner Chevron and Mobil.

A forecourt promise

Through what Bennetts calls its "forecourt promise", Z is pledging that a member of its staff will fill your tank up for you - in Z branded stations -  between 10am and 5pm in a move that will see Z take on additional staff.

"And if we let you down on that promise we'll give you a free cup of coffee or some flybuys points to acknowledge that we let you down," Bennetts said.

Asked whether people simply bought petrol based on price and convenience of the petrol station, Bennetts agreed they were the two key factors.

"However, after that there is a chance to differentiate yourself. We're large inside New Zealand but we don't want to be caught up inside that whole big oil type approach," said Bennetts.

"We think we can do a much better job for our customers by being nimble and responsive to this market, and we felt it was important we showed that through our brand, and people actually have - believe it or not - higher expectations of a local company."

"They've actually said through the research, if anything actually goes wrong in the sector, we expect you as the local firm to sort it out. So we're happy to live up to those expectations and we felt we should brand ourselves accordingly."

Meanwhile, on the infrastructure side of the business Z has also started to levy a "capital recovery charge" on competitors who use its terminal facilities. This is a break from previous industry practice where competitors have used each others facilities through borrow and loan agreements with the access costs calculated on a per litre rate of the annual operating costs.

Z says these deals don't, however, provide any return on the original investment made in tanks and nor do they encourage investment beyond annual maintenance costs, with this having led to a decline in tank upgrades and a limited number of new tanks being built over the past decade. Z plans to invest up to NZ$50 million in new terminal facilities over the next three years.

'Focus on shareholder returns, not market share'

Bennetts said Z's net profit after tax is about 3 cents a litre with about 1 cent of that stemming from what it makes from selling the likes of food and drink at its petrol stations.

"And we see that's really where the growth is. New Zealanders are reasonably satisfied in terms of demand around their fuel needs," Bennetts said. "We think we can actually help them with their busy days and say, 'look you're coming to us anyway, you're really busy, we can actually make that interruption to your day a little bit easier and satisfy two needs in one'."

With about a 30% share of the retail fuel market, Z is roughly on par with BP as the market leader. But Bennetts said Z wasn't a growth driven company in terms of market share.

"We actually want to grow the returns to our shareholders and by doing that it creates greater certainty for our bondholders. We'd like to get some organic market share," he said. "If there were some optimistic acquisitions that came our way, we'd certainly look at that. We have the capacity for that, but I'm much more focused on returns rather than market share."

"Sometimes when you get too focused on growth, you grow your amount of sales but  your actual performance or productivity with shareholder funds goes down. So I'm not into growth for the sake of growth."

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20 Comments

"I personally don't think we're at peak oil"

That's the problem, its "believers" versus the facts, but then of course you would hardly expect Bennetts to say anything which would damage Z's business.

The facts are that we only have a 228 year supply of oil left .... and I'm absolutely crapping my nappies  as to how I'm gonna run the Gummy fleet of Hummers after that ........

For me the issue isn't the amount of oil left in the ground, more the economic impact of increasing supply scarcity.

Hell, GBH - even the most optimistic idiot has it at 2030.

The 'facts' are nothing of the kind. How is it that you can cherry-pick little pieces of info that please you, ignore the rest (you must have gone past them to do the cherry-picking ) then cling to them?

Are you just a paid tout? Cynicism and all?

Or are you the reason they pay touts - the gullible cannon-fodder?

 

By your definition , anyone who is optmistic , is an idiot ?

....... can we have a vote on that , because there are some optimistic bloggers here , not alot , but some ....

... and I reckon they'd take a dim view of you abusing them , calling them idiotic ....

No, that's your definition.

I've stated - more than once - that sentiment doesn't enter into it.

Facts - dispassionately obtained, are the only thing worth ascertaining, and your cherry-pick, given what has been posted here the last couple of years, doesn't come close.

If interviewed at sundown, 100% of the passengers on the Tttanic would have said they expected to be alive to see the sunrise. Optimism fell foul of fact.

Note that I'm not a doomsayer either - I've trod the path of energy efficiency; seriously wouldn't trade places, houses or my lack of a (any) power bill, with anyone. Im very comfortable, a bit smug, and way ahead of Bill English in terms of resiliency.

But - your claimed 'fact' was blatant horseshit. You can't put up that kind of nonsense and not expect linguistic bullets.

 

Here's some encouraging links for the optimists (or others who feel like some cheering up) out there:

Apologies to PDK and other gloomsters

 

http://www.reuters.com/article/2011/07/04/us-rareearth-japan-idUSTRE7630...

http://www.youtube.com/watch?v=JaF-fq2Zn7I

http://www.youtube.com/watch?v=S6BLFdBfgfU

 

Awful for everyone ...

What about investors in the oil and gas industry ? ...

Rather pitiful that a senior manager can make such an ignorant comment.

Well done GBH,  the idiots are those that believe the hype to keep prices high,  There is untouched oil everywhere.

Keriwin,

I suggest going away, doing some reading, then come back and tell us all how much oil there is out there.

6.9 Trillion barrels ... trillion with a " T "  ..... and we're currently using 83 million barrels per day ..... you do the math ( Gummy hint : there are 365.25 days / year ) ....

..... and that is the currently known reserves ... more is constantly being found ..... in excess of 1000 wild-cat well are being drilled on USA soil this year , alone !

And there's nat-gas : the world's supplies of natural gas are a muliple of that of the oil ...... lucky old USA is sitting atop a mega-bonanza there ......

..... there is no energy crisis ,  ..  .... energy is plentiful & abundant . We do not need those idiotic wind-farms , on balance , they do more environmental harm than good ....

Sorry if the facts run counter to a bloody well spun histrionical environmental story ...

So why would sell a perfectly good highly profitable business.......

It is a bit like the mugs that think houses are still a good investment because they always rise in value.

I'm always amazed at how efficiently these companies can run, only making a net profit of a few cents a litre. I mean, the government must make well over a dollar a litre on petrol and they can't seem to do jack sh*t with all the cash they ream from petrol sales.

I think you'll find that the oil companies make a shed load more than a few cents per litre. It is the forecourt business that only makes a few c per l.

So peak oil is probably upon us, but it is the increasing political instability in the middle east that will cause the largest repercussions in the short to medium term. The 'West' no longer has the ability to maintain control there. However, GBH is probably right in as much as natural gas will save our civilisation this time around. However, we will have to address CO2, as climate change effects on the planet will continue to be a growing and grave problem.

The sooner we lose the stupid carbon tax, the sooner we can get around to solving that problem. And it is a real problem.

 

Personally, I don't like it when the attendant wants to pump the petrol. They always do it wrong. Plus then I just have to stand there making small-talk. Let me pump my own petrol, please.

"Z Energy CEO Mike Bennetts said high fuel prices, with petrol currently above NZ$2 a litre, were "awful for everyone."

Is this the same company that crowed in it's annual report about increasing margins on fuel? Is this the same Mike Bennett widely quoted as saying margins had to increase further?

Z competes with the global big boys
Uh huh, I see evidence of that at the pumps. If the spin doctor says it over and over and over again, maybe it'll be true.

A forecourt promise
"We actually want to grow the returns to our shareholders and by doing that it creates greater certainty for our bondholders."

If that isn't a forecourt promise I don't know what is. 

 

 

Hey GBH,

So interesting what is presented as fact. The oil reserve figures I looked at where both about 1.2 Trillion barrels.

There seems to be much todo about how one calculates it.

Re-assuring that we can always rely on GBH for cherry picked figures.

As you know , the Gummster is always ready to apologise for getting it wrong !

Sorry ! ...... I got my figgers wrong , I admit it ......

..... OK , here's the breakdown :

Conventional oil supplies                              =  1.3 trillion barrels

heavy oil in the Orinoco , Venezuela             = 1.2 trillion barrels

oil sands in Alberta , Canada                         = 2.5 trillion barrels

oil shale in Colorado/Utah/Wyoming , USA = 2.0 trillion barrels

                                                                 tally up = 7.0 trillion barrels

 

Not 6.9 trillion barrels as I said , but 7.0 trillion , in fact . .... I was wrong , and you were right to pull me up on that .

.. Cheers .

 

Oh arr , most grayshuss. Mistakes we all make, (yoda grunt)

I do worry meself tho when the biggist bit is the hardest bit to get at.

Howeva in true Bjornian no-shun, I should put more faith in hi tech to extract us all.

 

Z Energy says demand for its bonds "exceptionally" strong, over subscriptions accepted meaning $150m will be raised. Here's Z's statement:

Z Energy Limited (“Z Energy”) today announced that it has opened its offer of bonds to New Zealand investors.

The bonds have an interest rate of 7.25% and will mature on 15 August 2018.

Demand for the issue has been exceptionally strong and over subscriptions of NZ$50 million will be accepted, taking the issue size to NZ$150 million. All bonds have been allocated on a reserved basis for distribution by NZX Firms and other intermediaries and there will be no public pool available.

Z Energy’s Treasurer, Richard Norris, said Z Energy was very pleased with the strong support shown for the offer. He said Z Energy was delighted to give New Zealand investors an opportunity to invest directly in the Z Energy business.

The issue is expected to close on 5 August 2011 and the bonds allotted on 9 August 2011. Interest at 7.25% will accrue from (and including) the date the money is banked.

The bonds are secured senior obligations of Z Energy and will rank equally with each other, the existing series of bonds issued by Greenstone Energy Finance Limited (in respect of which Z Energy has become the substitute issuer), and Z Energy’s banks.

For further information contact the Joint Lead Managers:

ANZ National Bank Limited 0800 269 476
First New Zealand Capital Securities 0800 005 678
Forsyth Barr Limited 0800 367 227
Westpac Institutional Bank 0800 942 822

*Applications for the bonds can only be made using the application form included in the Simplified Disclosure Prospectus for the bonds. Investors should contact any of the Joint Lead Managers or their financial advisor to request a copy of the Simplified Disclosure Prospectus or secure an allocation of the bonds.

No applications for bonds will be accepted or money received unless the subscriber has received the Simplified Disclosure Prospectus for the offer. The minimum application amount in respect of the bonds is NZ$5,000 and in multiples of NZ$1,000 thereafter.

The bonds are unconditionally guaranteed by Z Energy, Aotea Energy Limited, Greenstone Energy Holdings Limited, Greenstone Energy Finance Limited, Harbour City Property Investments Limited, Big Tree Stations Limited and Mini Fuels & Oils Limited ("Z Energy Group"). The ultimate joint owners of the Z Energy Group, New Zealand Superannuation Fund and Infratil do not guarantee the bonds. The Z Energy Group's banks and bondholders share the same security over Z Energy's and the guarantors' assets on an equal ranking basis. This security ranks behind Shell's security over petroleum products that Shell has supplied for which it has not been paid, and their proceeds, and statutorily preferred creditors.

 

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