Caltex Australia Ltd. (CTX.AU) is working on a plan to keep at least one of its two loss-making oil refineries open despite no sign of a return to profitability from producing such fuels as gasoline, the company's chief executive said Thursday.

Caltex is exploring options to keep its Lytton refinery in Brisbane viable, and an ongoing review, due to be completed in the third quarter, will now focus on the Kurnell facility in Sydney, which is generating most of the losses in its refining arm, the company said, without elaborating.

The company said it was considering a "modest, incremental" investment in Lytton, which is better suited to produce the refined products demanded by the market.

Caltex in February wrote down the value of its two refineries by A$1.5 billion and said a review could lead to closures. Its Kurnell and Lytton refineries together employ about 800 people.

Higher oil prices, a strong Australian dollar and a regional oversupply of fuel have weighed on refiners' margins even as Australia's buoyant economy has bolstered sales volumes. Big new refineries in lower-cost countries such as India are making it tougher for Australia's seven relatively small operations to compete.

Caltex, Australia's largest refiner, Thursday reported a 10% fall in first-quarter operating profit before changes in the value of its fuel stocks. It reported a A$69 million profit in the first quarter, calculated on a replacement cost of sales basis--a closely watched measure that excludes the value of stockpiles--compared to A$77 million for the same quarter in 2011.

Caltex Chief Executive Julian Segal said Caltex's refining arm continued to lose money during the first quarter, with the Kurnell refinery suffering the majority of the losses in 2011 and 2012 to date. "This is expected to continue into the future," Segal said.

Adverse weather--including flooding in Queensland and New South Wales--and unplanned maintenance also eroded margins.

"Our refineries in their current configuration are relatively small and are disadvantaged compared to the modern, larger-scale and more efficient refineries in the Asian region," Segal told shareholders at the company's annual general meeting.

The company said it expects earnings to improve in the second quarter, but also expects the Australian dollar to continue to pressure margins in the medium-to-long term.

Segal said the company may look to alter its mix of sourced products--including sourcing from domestic and international competitor refineries--at the Lytton refinery.

Australia's total fuel imports jumped to a record A$3.77 billion in March, data from the Australian Bureau of Statistics showed this week.

-By Rhiannon Hoyle, Dow Jones Newswires; 61-2-8272-4625; rhiannon.hoyle@dowjones.com

Caltex Australia (ASX:CTX)
Historical Stock Chart
From Nov 2024 to Dec 2024 Click Here for more Caltex Australia Charts.
Caltex Australia (ASX:CTX)
Historical Stock Chart
From Dec 2023 to Dec 2024 Click Here for more Caltex Australia Charts.