REFINING NZ NOTICE OF ANNUAL MEETING EXPLANATORY NOTES 2012

Transcription

1 NOTICE OF ANNUAL MEETING EXPLANATORY NOTES 2012

2 Shareholder briefings Shareholders have the opportunity to vote on the CCR Project at the Annual Meeting on 27 April This is a significant decision that will help to shape the future of Refining NZ. A majority of the Board recommends that all shareholders vote in favour of the CCR Project. Refining NZ will be holding a series of briefings throughout New Zealand during April 2012 to provide shareholders with a further opportunity to learn more about the CCR Project. Shareholding briefings will be held as follows: LOCATION DATE & TIME VENUE Whangarei Auckland Wellington Christchurch Mon 16 April hours Tue 17 April hours Wed 18 April hours Thu 19 April hours Cafler Suite Forum North Rust Ave Whangarei Ellerslie Event Centre Pakuranga Hunt Room Ascot Ave Greenlane Auckland James Cook Hotel Grand Chancellor Chancellor 6 Room 147 The Terrace Wellington Addington Raceway and Events Centre Legends Lounge (Level 3) 75 Jack Hinton Dr Tower Junction Christchurch Information For further information, please contact: Greg McNeill Communications and External Affairs Manager T: ext E: greg.mcneill@refiningnz.com Physical address Refining NZ Port Marsden Highway Ruakaka Northland 0171 New Zealand Postal address Refining NZ Private Bag 9024 Whangarei 0148 New Zealand T: F: E: corporate@refiningnz.com Shareholders are invited to join Board representatives and members of Refining NZ s leadership team for a light luncheon at the conclusion of each briefing. On-line video Chief Executive Officer, Ken Rivers, was recently interviewed by Economist and Business Commentator, Bernard Hickey, regarding the CCR Project. A video of the full interview is available for shareholders to view on-line at:

3 Contents Approval of CCR Project: Agenda Item 3 The CCR Project Executive summary Our vision and strategy Key questions Financial overview Evaluation process CCR Project risks Re-life Project alternative Director recommendation Re-election of Directors: Agenda Item 4 Approval to increase Directors fee pool: Agenda Item 5 24 Glossary

4 1 The CCR Project Executive summary At a meeting held on 21 February 2012, a majority of Refining NZ s Board of Directors resolved to support an investment of NZ$365 million for the construction of a Continuous Catalyst Regeneration Platformer (the CCR Project). Given the size of the investment, the CCR Project requires shareholder approval and an ordinary resolution will be put to the Annual Meeting on 27 April A majority of the Board recommends that shareholders support the motion. A full explanation of the CCR Project is included on pages 1 to 18 of this Explanatory Note. Continuing to grow value for our shareholders is at the heart of our strategic plan. We believe that building a Continuous Catalyst Regeneration Platformer is a significant step towards achieving our aims. On commissioning, the CCR Project improves profitability and strengthens Refining NZ s competitive position, delivering improved returns to shareholders, with no call for new equity from shareholders. It also demonstrates the continued value of our contribution to New Zealand by strengthening the nation s transport fuel supplies, reducing environmental impact and creating employment in Northland and elsewhere in the country. The CCR Project involves replacing the existing 1960s Platformer, which would otherwise require expenditure of approximately NZ$105 million to extend its operational life beyond 2015 (the Re-life Project). If the CCR Project is not undertaken now, the Re-life Project will be required and cannot be delayed. If the CCR Project is not supported by shareholders, then the Company will have to initiate the NZ$105 million Re-life Project in order to sustain refinery operations beyond 2015 (further details on the Re-life Project are included on pages 19 to 20 of this Explanatory Note). The CCR Project will enable crude oil to be processed into oil products much more effectively and efficiently. The improvement in yields and energy efficiency are expected to increase Refining NZ s gross refining margin (GRM) by approximately US$1.10 per barrel (in 2012 dollar terms, i.e. uninflated) post commissioning in The CCR Project will also enable Refining NZ to process a wider range of crude oil, increase the amount of crude processed each year (intake volume) by approximately three million barrels (8%) and improve our share of the New Zealand petrol market by around 10%. The higher GRM and the increased intake volumes beyond 2016 are expected to increase processing fee revenues by around NZ$70 million per year and earnings before interest, tax, depreciation and amortisation (EBITDA) by around NZ$60 million per year (in 2012 dollar terms). Once the CCR Project debt has been substantially repaid, the increased operating cash flows will enable the Company to pay significantly higher (fully imputed) dividends. The key assumptions underlying these increased returns are detailed on page 13. The CCR Project is not without risks in a business environment which is likely to remain volatile. We will be making more petrol in a world where there will be surpluses of petrol. Refining NZ expects to be able to produce around 65% of the petrol that New Zealand needs, reliably for our customers and cost-competitively against imports. The Board of Directors think that supply, reliability and costcompetitiveness are relevant considerations and further supported by significant environmental benefits that the Project is expected to deliver. Looking at the longer term, the CCR Project secures the Company s ability to meet New Zealand s growing demand for energy and continues to improve the Company s competitiveness against imports. Our analysis shows that the CCR Project is profitable, affordable and creates shareholder value. A summary of the CCR Project risks are detailed on page 18. We have been assisted in our analysis and evaluation of the CCR Project and the Re-life Project by industry experts (refer to page 17) and First NZ Capital who completed the financial evaluation. Based on agreed assumptions, First NZ Capital concluded that the CCR Project (relative to the Re-life alternative) is in the best interests of Refining NZ from a financial perspective (refer to pages 13 to 16). Based on the analysis undertaken by Refining NZ and its external advisors, the CCR Project is expected to create value for shareholders.

5 Shareholder vote An Ordinary Resolution of shareholders is required to approve the CCR Project. Under the NZX Listing Rules (9.1.1) a shareholder vote is required where the value of the proposed investment is greater than half the company s market capitalisation, based on the average market value of the company over 20 working days preceding announcement to the market (21 February 2012). For the purposes of NZX Listing Rule 9.1.1, Refining NZ has added front end engineering and design (FEED) costs incurred and expected capitalised interest on projected borrowings to the NZ$365 million capital cost of the Project. This results in a total cost of NZ$425 million which is greater than half the Company s average market capitalisation of NZ$785 million as at 21 February At least 50% of votes cast by shareholders at the Annual Meeting need to support the CCR Project in order for it to go ahead. If the CCR Project is not supported by shareholders, then the Company will have to initiate the NZ$105 million Re-life Project in order to sustain refinery operations beyond Director recommendation The Directors have given careful consideration over many months to the issues (including CCR Project risks) and opportunities which may arise in relation to the CCR Project proposal. Having done so, a majority of the Board is supporting the CCR Project as a positive step forward in the Company s strategy for the continued growth and development of Refining NZ. Notice of Meeting This Explanatory Note forms part of the Notice of Meeting at which the investment in the CCR Project will be presented to Refining NZ shareholders for approval in accordance with NZX Listing Rule It provides shareholders with information on the proposed CCR Project and Re-life Project alternative, funding proposal and the investment evaluation process. A Glossary of terms is included on page 24. Shareholders will have the opportunity to vote on the CCR Project at the Company s Annual Meeting to be held at Marsden Point on Friday, 27 April Key benefits of the CCR Project The CCR Project has significant benefits for shareholders and our business. The CCR Project is expected to structurally increase Refining NZ s processing capability enabling Refining NZ to process more crude oil, lifting Refining NZ s share of the transport fuels supply chain, and to process it more effectively and efficiently. The processing fee goes up because there are more barrels of crude processed and the margin earned on each barrel also goes up. This generates a higher processing fee revenue increasing profitability, dividends and shareholder value. THE CCR PROJECT IS EXPECTED TO INCREASE SHAREHOLDER VALUE BY DELIVERING THE FOLLOWING BENEFITS (BASED ON THE MODELLED BASE CASE): an internal rate of return (IRR) on the investment of greater than 17% a net present value (NPV) of approximately NZ$340 million a project payback period of eight years (net four years post commissioning) higher fully imputed dividends than the Re-life alternative (once CCR Project debt has been substantially repaid), more than offsetting the lower expected dividends during the construction phase. The IRR, NPV and payback period of the CCR Project have been assessed using the difference in cash flows to Refining NZ which result from the CCR Project (i.e. Refining NZ free cash flow in the CCR Project scenario minus Refining NZ free cash flow in the Re-life Project scenario). The assumptions underlying these benefits, including key sensitivities, are outlined further in the Financial Overview section (pages 13 to 16). Key risks to achieving these benefits are detailed in the CCR Project Risks section (page 18). 2

6 3 THE CCR PROJECT IS EXPECTED TO DELIVER THE ABOVE BENEFITS THROUGH: increasing the GRM post commissioning by approximately US$1.10 per barrel (in 2012 dollars) as a result of the improved energy efficiency, reduced fuel losses and improved product yields increasing processing capacity by an additional three million barrels of crude per year (approximate 8% increase) through de-constraining crude distiller processing reducing the frequency of shutdowns of Refining NZ s petrol making plant from every 18 months to every six years. THESE CCR PROJECT BENEFITS ARE EXPECTED TO INCREASE S PROFITABILITY BY: increasing annual processing fee revenue by approximately NZ$70 million (in 2012 dollars) post commissioning in 2016 increasing annual EBITDA by approximately NZ$60 million (in 2012 dollars) post commissioning in THE CCR PROJECT WILL GENERATE SUSTAINED VALUE FOR OUR REFINING BUSINESS BY: increasing annual petrol production capacity by approximately two million barrels to around 13 million barrels per year, this will improve Refining NZ s market share from around 55% to approximately 65% lifting Refining NZ s overall market share in New Zealand s fuel supply chain (excluding fuel oil and bitumen) by around 10% to approximately 80% improving the supply reliability of the refinery (reduced shutdown frequency of the petrol making plant) leading to an increase in Refining NZ s competitiveness against imports improving energy efficiency and lowering carbon emissions per litre of fuel produced by approximately 14% which equates to a saving of around 120,000 tonnes of carbon per year enabling us to meet our obligations under the Negotiated Greenhouse Agreement with the Crown (which would otherwise require additional investment) improving flexibility in terms of the types of crude that our customers can process at Marsden Point avoiding the Re-life Project spend of approximately NZ$105 million to extend the operational life of the semi-regeneration Platformer unit for a further 25 years (refer to pages 19 to 20). In addition to these operational benefits the CCR Project will create around 300 jobs during construction. This will be a boost for the local as well as the national economy (every job at the refinery generates another two in Northland and another six in specialist sectors across New Zealand). The above benefits will not be realised if the CCR Project is not approved by shareholders. Instead, the Re-life Project of approximately NZ$105 million would need to be undertaken to extend the operational life of the semiregeneration Platformer unit for a further 25 years from The Re-life Project is required to maintain current operations but it will not result in any increase in financial performance. There will be no call for new equity from shareholders to fund the CCR Project. The Company has credit approved bank facilities available to fund the CCR Project on competitive terms and binding agreements are currently being negotiated.

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8 5 Our vision and strategy Our purpose: To be New Zealand s supplier of choice for oil products FOR SHAREHOLDERS WE WILL HAVE REALISED OUR VISION IF WE ACHIEVE THE FOLLOWING AIMS: Deliver 15% ROACE sustainably over the business cycle. LEADING IN RELIABILITY, SAFETY & ENVIRONMENT SUPPORTING NEW ZEALAND S GROWTH TO ACHIEVE OUR AIMS WE WILL PURSUE FIVE KEY STRATEGIES: Asia Pacific s Best: Implement a more structured and systematic approach to operational excellence that will deliver and sustain world class HSE, asset integrity and reliability performance. NZ Supplier of Choice: Continuously improve competitive position versus imports and target production capacity at 50-80% of NZ demand by developingeloping robust options to close the gap. HONESTY & INTEGRITY

9 6 Our vision: Fuelling New Zealand s Future FOR CUSTOMERS FOR ALL STAKEHOLDERS Provide 50-80% of NZ products by being the most competitive source of supply in terms of reliability, cost and environmental footprint. Attract, develop and retain talented individuals and business partners to sustain and grow the business and be recognised as a valued corporate citizen locally, regionally and nationally. ROBUST PROFITABILITY PEOPLE & PERFORMANCE DELIVERING ON OUR PROMISES Delivering in a Volatile World: Close the gap against Asia Pacific refinery competitors within five years by structural improvements to revenue and cost and leveraging insight from industry benchmarking. Being an Employer of Choice: Build leadership and organisational capability to run and develop the business. Developing Mutual Trust, Understanding & Support: Based on impeccable performance and structured and proactive engagement, build a reputation as a valued and admired company and by being a good corporate citizen at a local, regional and national level. VALUES & BEHAVIOURS: RESPECT LEADERSHIP WINNING TOGETHER OUR MANAGEMENT SYSTEM TURNING OUR KNOWLEDGE INTO RESULTS

10 7 Our purpose New Zealand s Supplier of Choice for Oil Products Supplier of Choice means we want our customers to always look to Refining NZ first to provide the products they need. We target our production capacity at between 50 80% of New Zealand demand for all oil products. The lower end of the range recognises the danger of becoming the swing producer, making up any shortfall in product imports into New Zealand. The upper end of the range target (80%) is to guard against Refining NZ producing more oil products than the country needs, which would lead to exporting surplus production. Refining NZ currently produces: all of New Zealand s aviation jet fuel around 80% of the country s diesel requirements all of the country s fuel oil requirements 75 85% of the bitumen for roads. Refining NZ currently produces only 55% of New Zealand s petrol demand with the balance supplied by imports. The CCR Project would increase Refining NZ s petrol market share to 65% and be fully in line with our purpose to provide more of the oil products that New Zealand needs. Our vision Fuelling New Zealand s Future The CCR Project provides a significant step forward. Our vision of Fuelling New Zealand s Future will be realised if we achieve the following aims: FOR SHAREHOLDERS: Deliver 15% return on average capital employed (ROACE) sustainably over the business cycle. FOR CUSTOMERS: Provide 50-80% of all New Zealand s oil products by being the most competitive source of supply in terms of reliability, cost and environmental footprint. FOR ALL STAKEHOLDERS: Attract, develop and retain talented individuals and business partners to sustain and grow the business and be recognised as a valued corporate citizen locally, regionally and nationally. The CCR Project represents a significant step forward towards achieving our vision, delivering benefits for shareholders, customers and stakeholders. The IRR, NPV and payback period of the CCR Project have been assessed using the difference in cash flows to Refining NZ which result from the CCR Project (i.e. Refining NZ free cash flow in the CCR Project scenario minus Refining NZ free cash flow in the Re-life Project scenario).

11 Based on our assumptions, the CCR Project, relative to the Re-life alternative, will add value by delivering: 8 FOR SHAREHOLDERS An IRR of over 17%. NPV or incremental firm value of ~NZ$340 million. A project payback of eight years (net four years post commissioning). In 2012 dollar terms, on average: higher processing fee revenue of ~NZ$70 million per annum post commissioning higher EBITDA of ~NZ$60 million per annum post commissioning. Significantly higher dividends post commissioning once borrowings have been substantially repaid. Avoids a ~NZ$105 million spend to maintain existing capability. FOR CUSTOMERS Increase Refining NZ s share of the petrol market from ~55% to ~65%. Increase crude processing flexibility. Improve Refining NZ s: reliability (reduced shutdown frequency for petrol making plant) competitiveness: margin uplift of ~US$1.10/ barrel lower unit inventory costs and incremental shipping costs environmental footprint: improved energy efficiency lower CO 2 emissions. FOR ALL STAKEHOLDERS Increase New Zealand s selfreliance and improve the robustness of critical oil supplies. Help meet the country s future energy needs (where 40% of New Zealand s total energy needs are already supplied ex Refining NZ). Improvements in energy efficiency and environmental footprint that support the country s strategy on climate change. Creation of ~300 jobs during construction. Boost local (and New Zealand) economy with further high quality job creation (including specialist sectors). Because the Re-life Project does not provide any additional financial return, the IRR and NPV would be negative, with no project pay-back. In simple terms, this means that the benefits accruing to shareholders from an incremental investment of NZ$260 million in the CCR (as outlined in the above table) would not be realised by the Re-life: there would be no GRM uplift, no increase in revenue and no increase in EBITDA. The assumptions underlying the CCR Project benefits, including key sensitivities, are outlined further in the Financial Overview section (pages 13 to 16). Key risks to achieving these benefits are detailed in the CCR Project Risks section (page 18). The CCR Project represents the next step in Refining NZ s growth strategy. Since operations began in 1964 we have successfully completed a series of expansions to the original plant, each of which has grown the refinery s capabilities as well as the value of our business: Major expansion in the mid 1980s saw the first significant additions to the original plant adding the hydrocracker unit and the 170 kilometre Refinery to Auckland Pipeline (RAP) delivering product to New Zealand s major market. In 2005, the Future Fuels Project gave us the capability to produce world class quality fuels comprising ultra-low sulphur diesel and low benzene petrol. In 2009, the Point Forward Project increased our throughput capacity to 135,000 barrels per day, grew our business by around 15% and lifted our overall share of the New Zealand fuels market to around 70%. We have a good track record of executing large projects. External experts rated the Point Forward Project, as being in the global top 20%, in terms of project execution, and Refining NZ as one of the few manufacturing sites across the world that would have been capable of successfully delivering such a complex project. Refining NZ has the capability to successfully deliver the CCR Project.

12 9 Key questions Why undertake the CCR Project now? Looking for further opportunities to grow, to secure shareholder value and deliver for customers and stakeholders is central to our strategy. Having built and commissioned the Point Forward Project in 2009, our focus was to make sure that the investment delivered the business benefits as promised. Over the last two years, we have paid off the Point Forward Project debt and are now in a position to consider the next growth opportunity for Refining NZ. We have explored a range of investment opportunities and concluded that the CCR Project is the best option to maximise the value of the Company. It also eliminates the need to spend around NZ$105 million on the original 1960s semi-regeneration Platformer to keep it in operation beyond If the CCR Project is not undertaken now, this Re-life Project will be required and cannot be delayed. The Point Forward Project increased the crude processing capability of the refinery to 135,000 barrels per day. The CCR Project was originally planned as part of this investment and would unlock further value from the Point Forward Project by de-bottlenecking and eliminating processing constraints. What alternatives have been considered? In 2009 the Company carried out a study of investment opportunities with each ranked against a range of financial metrics and the Company s strategic aims. With the CCR Project and the Re-life Project, the list also included extending the RAP, increasing crude flexibility and single point mooring for larger crude shipments. The CCR Project was by far the most attractive investment opportunity and this view was reconfirmed in The CCR Project eliminates the need to spend approximately NZ$105 million to extend the operational life of the existing semi-regeneration Platformer unit for a further 25 years post The Re-life alternative (detailed on pages 19 to 20) simply retains existing capability and, although a smaller investment, it would involve replacing key parts of the existing refinery, rather than a green-field construction, as is the case with the CCR Project. This adds complexity and introduces additional construction and health, safety and environmental risks. The CCR Project enables further growth opportunities to be considered at a later date. Post 2016, a refurbishment of another section of the petrol production facilities (the naphtha hydro-treater) could be carried out to produce an additional two million barrels of petrol per year. This would further increase Refining NZ s share of the New Zealand petrol market from approximately 65% to around 75%. This project has an estimated cost of NZ$100 million and initial analysis suggests it is attractive. The Board will consider this project in the future depending on the prevailing market conditions and economics. How will the CCR Project benefit Refining NZ s intake volumes and GRM? The CCR Project allows a further three million barrels of crude to be processed on average each year (an increase of approximately 8%). This is due to the larger capacity of the CCR Platformer unit, improved CCR technology and the reduced shutdown frequency. Improved product yields and energy efficiency are expected to lift the GRM by around US$1.10 per barrel (in 2012 dollars). This is a key financial benefit of the CCR Project and applies to all barrels of crude processed at Refining NZ, not just the incremental increase in intake volume generated by the CCR. Ultimately, the amount of GRM uplift is dependent on the crude price assumed. However, in both a high and low crude price environment, a significant uplift in GRM is expected to be achieved as shown below: CRUDE PRICE ASSUMPTION Flat US$60 per barrel ~US$ per barrel to 2025 (base case assumptions) ~US$ per barrel to 2025 (base case assumption + US$30 per barrel) AVERAGE GRM UPLIFT (IN 2012 DOLLARS) US$0.91 per barrel US$1.10 per barrel US$1.23 per barrel

13 What are the operational benefits of adopting the CCR technology? The CCR technology is proven in the refining industry. Developed by UOP LLC, CCR technology has developed over 40 years and been commissioned globally in over 200 locations. Refining NZ would invest in the latest version of this mature technology. The CCR Platformer will allow higher crude throughputs and greater flexibility of crude choice by enabling more naphtha, and hence crude containing more naphtha (lighter) fractions, to be processed. The CCR Platformer has a higher liquid yield than the existing semi-regeneration platforming unit, which means more of the naphtha feed is converted into valuable petrol components. The CCR also produces more hydrogen which would otherwise have to be produced less efficiently and more expensively via the existing Hydrogen Manufacturing Unit. The CCR technology removes the need for periodic shutdowns for catalyst regeneration every 18 months during which time crude runs have to be cut by around 70% and neither diesel nor petrol can be produced. By continuously regenerating catalyst, the CCR Platformer only shuts down for maintenance every six years. How will the CCR Project impact current operations while construction is underway? The new CCR Platformer would be built within the confines of the refinery and would not impact on refinery operations during the construction phase. The existing semi-regeneration Platformer would continue to operate normally. When construction is complete and all testing and pre-commissioning activities have been carried out, the CCR Platformer will be brought into production. The existing Platformer would then be shutdown and decommissioned. What will the CCR Project cost? The CCR Project is expected to cost NZ$365 million. This represents the total construction cost, including engineering, procurement of materials and equipment, construction, catalysts and other costs. The NZ$365 million spend does not include the FEED costs (NZ$21 million) approved by the Board in February 2011 or expected capitalised interest (estimated at NZ$39 million). Approximately half of the CCR Project cost will be denominated in foreign currency. Refining NZ has entered into hedging arrangements to partly insulate the impact of foreign currency fluctuations on the total CCR Project cost. Project spending peaks in 2014, as shown in the graph below: 19% % % 2014 The business benefits of the CCR Project have been assessed on the incremental spend of NZ$260 million over and above the NZ$105 million Re-life Project. The CCR Project will use the same contracting and procurement processes as the successful Point Forward Project. The majority of purchase orders will be awarded following a competitive tendering process, although there will be a few sole suppliers. Some services, particularly during construction, will be based on reimbursable cost contracts with market rates at the time the goods or service are supplied. 20% 2015 How will the CCR Project be funded? Refining NZ considered a range of financing sources, and concluded that bank funding provides the lowest cost and the most flexible source of financing for the CCR Project. The CCR Project will be funded through a new NZ$300 million bank facility and Refining NZ s operating cash flows. There will be no call on shareholders for new equity. The NZ$300 million facility is to be spread across three banks ( A rated or better) through bilateral agreements. The terms of this funding are NZ$100 million at four years and NZ$200 million at five years. Refining NZ has credit approved terms from the three banks and binding agreements are currently being negotiated. The agreements do not require any change to Refining NZ s current financial ratios or the provision of any security. 2% UOP LLC, OWNED BY HONEYWELL, IS A LEADING AMERICAN SUPPLIER OF TECHNOLOGY TO THE REFINING AND PETROCHEMICAL SECTOR.

14 11 How will the CCR Project be managed? Refining NZ has a proven track record in the successful delivery of large scale projects: the Future Fuels Project in 2005 and the Point Forward Project in The Point Forward Project provides a successful contracting model for the CCR Project. An integrated team comprising Refining NZ management, technical personnel and an international engineering and procurement team will be established. Local and New Zealand based contractors and suppliers will be used wherever possible many of whom were involved in the Point Forward Project. The excellent results in safety, schedule, costs and quality achieved on the Point Forward Project will provide a benchmark for the delivery of the CCR Project. Who will be involved in constructing the CCR? Several key parties will be involved in the design and construction of the CCR: Technology package: UOP is the predominant licensed supplier of CCR technology to the global refining industry and currently has over 200 units in service. Refining NZ has a long-standing relationship with UOP for the supply of catalyst and engineering studies. Engineering, procurement and construction: Worley Parsons, an international provider of technical, project and operational services, will develop the basic design supplied by UOP into detailed drawings, specifications, data sheets and work packages that will enable construction of the processing units. Worley Parsons will also be responsible for the procurement process for major equipment and bulk materials. Local suppliers and contractors have demonstrated the ability and commitment to provide the technical expertise, labour, equipment and management capabilities to successfully execute projects. What will the CCR Project mean for shareholders? The CCR Project will be commissioned in quarter four, 2015 and will enable Refining NZ to process more crude oil and to process it more effectively and efficiently. The processing fee goes up because there are more barrels of crude processed and the margin earned on each barrel also goes up. This generates a higher processing fee revenue, increasing profitability, dividends and shareholder value. The CCR Project increases shareholder value by delivering the following benefits: an IRR on the investment of greater than 17% an NPV of approximately NZ$340 million a project payback period of eight years (net four years post commissioning) significantly higher fully imputed dividends than the Re-life Project alternative post commissioning (once CCR Project debt has been substantially repaid) more than offsetting the lower expected dividends during the construction phase. The IRR, NPV and payback period of the CCR Project have been assessed using the difference in cash flows to Refining NZ which result from the CCR Project (i.e. Refining NZ free cash flow in the CCR Project scenario minus Refining NZ free cash flow in the Re-life Project scenario). The assumptions underlying these benefits, including key sensitivities, are outlined further in the Financial Overview section (pages 13 to 16). The CCR Project delivers the above benefits through: increasing Refining NZ s GRM by approximately US$1.10 per barrel (in 2012 dollars) as a result of the improved energy efficiency, reduced fuel losses and improved product yields increasing processing capacity by an additional three million barrels of crude per year (approximate 8% increase) reducing the frequency of shutdowns of Refining NZ s petrol making plant from every 18 months to every six years. These CCR Project benefits structurally increase Refining NZ s profitability: increasing annual processing fee revenue by approximately NZ$70 million (in 2012 dollars) post commissioning in 2016 increasing annual EBITDA by approximately NZ$60 million (in 2012 dollars) post commissioning in The assumptions underlying these benefits, including key sensitivities, are outlined further in the Financial Overview section (pages 13 to 16). These benefits will be delivered with no call for new equity from shareholders to fund the CCR Project. The Company has committed bank facilities available to fund the project on competitive terms. WORLEY PARSONS IS A GLOBAL ENGINEERING COMPANY WITH 148 OFFICES IN 44 COUNTRIES (INCLUDING NEW ZEALAND), AND WORKED SUCCESSFULLY WITH ON THE POINT FORWARD PROJECT. WORLEY PARSONS HAVE RECENTLY ENGINEERED A CCR PLATFORMER FOR ANOTHER OIL COMPANY IN THE UNITED STATES.

15 Why is shareholder approval required? This requirement is set out in the NZX Listing Rules and the Company constitution: NZX Listing Rule requires shareholder approval to be obtained for any transaction or series of linked transactions or related transactions, where a company acquires assets with a gross value of more than 50% of the company s Average Market Capitalisation over the 20 business days before the earlier of the day the transaction is entered into or is announced to the market. Clause 5.1 of the Company s Constitution reflects the Average Market Capitalisation test in NZX Listing Rule For the purposes of NZX Listing Rule the Company has added FEED costs of approximately NZ$21 million and expected capitalised interest of approximately NZ$39 million on project borrowings to the NZ$365 million capital cost of the CCR Project. The total cost (NZ$425 million) exceeded 50% of the Company s Average Market Capitalisation over the 20 business days to 21 February 2012 of NZ$785 million. Therefore, an Ordinary Resolution of shareholders to approve the CCR Project is required. The oil companies own 73% of the shares and their representatives have 70% of the seats at the Board table. A majority of the Board supported the CCR Project so why do I need to vote? The oil companies, as shareholders, are not bound to support the CCR Project even though it has the support of a majority of the Board. Directors have a duty to act in what they believe to be in the best interests of the Company, and views may differ. It is not a foregone conclusion that there will be a majority of shareholders votes in favour of the CCR Project. At least 50% of votes cast by shareholders at the Annual Meeting on 27 April 2012 need to support the CCR Project in order for it to go ahead. If you have a view on the CCR Project then it is important that you express it by voting at the Annual Meeting. Are project execution risks of the CCR Project similar to those for the Re-life Project? The Company believes the Re-life Project carries relatively more risks than the CCR Project. The scope of the Re-life Project is less well developed and also there is a possibility of additional repair requirements being discovered during the Re-life Project. The Re-life Project also involves modifications to a running plant rather than construction of a CCR in a green-field location, which means that there are more health, safety and environmental risks to manage. Have you considered all of the risks associated with the CCR Project and what impact those identified risks could have on project returns? Like any investment, the CCR Project is not without risks. Refer to page 18. A large number of sensitivities around variations in market outlook, oil prices, costs and technical issues have been assessed in order to test the robustness of the CCR Project. Multiple combinations (covering 1,000 different iterations) of key variables have been modelled and the results show the resilience of the CCR Project benefits. However, it is possible that a combination of factors, if they all moved in a particular way, could reduce the attractiveness of the CCR Project. For example if the CCR Project costs over-ran by 10%, the Re-life Project was 30% cheaper than expected, the assumed crude price fell from US$120 per barrel today to US$60 per barrel, and new capacity created by the CCR was only half utilised, then the IRR of the CCR Project would reduce from approximately 17% to approximately 12%. In this scenario the CCR Project is less attractive, but the return is still above the Company s assessed long-term WACC of 9.3% and therefore is value creating. Further sensitivities are considered in the following section and detailed on page

16 13 Financial overview First NZ Capital, one of New Zealand s leading finance houses, completed the financial analysis of the CCR Project relative to the Re-life Project (the alternative project that will be required if the CCR Project is not approved by shareholders). The CCR Project fits with strategy and the Directors recommendation to approve the CCR Project is based on the financial returns expected from the CCR Project being materially higher than the returns after undertaking the Re-life Project and therefore in the best interests of Refining NZ. Assumptions To analyse the financial implications of the CCR Project, assumptions were made around future hydrocarbon oil and product prices, change in product yields and the macroeconomic environment. The assumptions used in Refining NZ s evaluation of the CCR Project have been independently provided, sourced from market based information or developed by Refining NZ management. All assumptions have also been approved by Refining NZ s Board of Directors. The key groups of assumptions and their sources are: hydrocarbon crude oil and product price set provided by Facts Global Energy (FGE), a leading global oil and gas consulting business freight rates FGE retained the services of Gibson Shipbrokers Limited, an international company providing tanker broking and market analysis services to provide an outlook for freight rates macroeconomic data (e.g. foreign exchange, interest and inflation rates) sourced by First NZ Capital from market based information providers change in product yields following completion of the CCR Project developed by UOP, a world leader in the petrochemical industry and verified by Refining NZ s technical adviser, (Shell Global Solutions Limited) capital expenditure estimate developed by Worley Parsons, supervised by Refining NZ management and independently reviewed by Refining NZ s technical adviser. The CCR Project financial evaluation is presented on a relative basis, that is, the assessed change on overall valuation of Refining NZ based on undertaking the CCR Project instead of undertaking the Re-life Project. Therefore the CCR Project evaluation only takes into account changes resulting from the CCR Project benefits outlined in the section entitled Key Benefits of the CCR Project. In particular: differences arise from the increased processing capability, increased product yields and capital expenditure referred to above no changes in hydrocarbon crude oil or product prices, freight rates or macroeconomic data are assumed between the CCR Project and the Re-life Project. The base case assumptions used in the evaluation of the CCR Project and Re-life Project include: a hydrocarbon price set using a crude oil price ranging from US$90 to US$125 per barrel from 2012 to 2025 a NZ$/US$ exchange rate falling from 0.77 in 2012 to 0.66 by 2020 and flat thereafter domestic cost inflation ranging from 2.2% to 2.8% over the period 2012 to 2018, and 2.0% from 2019 onwards. There is no difference in operating costs between the modelled CCR Project and Re-life Project scenarios, except with regards to electricity consumption, which is higher in the CCR Project scenario due to the increased processing capacity global inflation of approximately 1.5% over 2012 to 2014, and 1.7% from 2015 onwards a long-term WACC of 9.3% a terminal growth rate of 2.0%. Using these assumptions, the future free cash flows generated by Refining NZ with and without the CCR Project were determined, and a financial assessment of the CCR Project and Re-life Project alternative was made by First NZ Capital. In addition, a number of other scenarios were evaluated to confirm the robustness of the CCR Project across a range of market conditions. The operating and financial implications set out on pages 14 to 15 are based on certain key assumptions around future events. While the Directors of Refining NZ have given careful consideration to the CCR Project, including approving the assumptions used, the actual results or performance may differ from these assumptions.

17 Operating implications (Based on assumptions refer to page 13) The CCR Project is expected to increase Refining NZ s GRM by approximately US$1.10 per barrel in real terms (i.e. in 2012 dollars) and intake volumes (including effects of shutdowns) by approximately 8% post commissioning in The change in GRM and intake volumes underlying Refining NZ s assessment of the CCR Project in nominal (i.e. inflated terms) is shown in the table below: 14 Increase in GRM and intake volumes from the CCR Project (Nominal i.e. inflated. Includes effects of shutdowns) , , ,600 GRM (US$/BBL) ,000 2,400 1,800 1,200 INTAKE VOLUME ( 000 BBL) (0.20) (600) CHANGE IN GRM CHANGE IN INTAKE VOLUME The increase in GRM is generated by improved energy efficiency, reduced fuel losses and better product yields.

18 15 Financial implications (Based on assumptions refer to page 13) The CCR Project is expected to have a material positive financial impact on the Company, increasing both the GRM and volume intake capacity. The CCR Project decreases operating costs on a per unit basis. The debt used to fund the Project changes Refining NZ s capital structure over the medium term. Based on the assumptions approved by the Board: Refining NZ s processing fee revenue (on average, in 2012 dollars) is expected to increase by approximately NZ$70 million post commissioning in Accounting for an increase in total costs mainly due to increased electricity usage, we expect that annual EBITDA would increase (on average, in 2012 dollars) by approximately NZ$60 million, post commissioning in The increase is represented by the following elements: - Increased throughput 21% - Improved energy and reduced fuel loss 72% - Additional margin 12% (excluding energy and fuel and loss) - Plant availability 5% - Operating costs (10%) 100% Refining NZ s capacity to pay fully imputed dividends (once CCR Project debt has been substantially repaid) post commissioning would also significantly increase relative to the Re-life Project, more than offsetting the lower expected dividends during the construction phase. Refining NZ s Earnings per Share (EPS) would be on average significantly higher following the completion of the CCR Project compared with the Re-life Project alternative. Refining NZ s net debt is expected to increase to a peak level of approximately NZ$240 million in At this level of debt the Company is projected to comfortably comply with its debt covenants. Additionally, Refining NZ is capable of reducing this debt to zero by early 2020, while maintaining its current dividend policy. Financial assessment (Based on assumptions refer page 13) One of the financial evaluation tools used to assess the CCR Project is IRR. An IRR that is greater than a project s WACC implies the creation of company value. The CCR Project relative to the Re-life Project generates an IRR of over 17% in the base case. This exceeds the long-term WACC used by Refining NZ in the financial evaluation of 9.3%, and a range of typical market WACCs. Discounted cash flow analysis has also been used to determine the NPV of the CCR Project (i.e. the benefit of the cash flows, less the cost of the investment). On the basis of Refining NZ s assumptions, the CCR Project generates an attractive NPV, or incremental company value, of approximately NZ$340 million. This NPV includes approximately NZ$25 million of notional value attributable to the lower carbon emissions in the CCR Project relative to the Re-life Project which we are required to include under the NGA (an NPV greater than zero implies the creation of company/shareholder value). In arriving at this NPV, a terminal growth rate of 2.0% has been assumed. The terminal free cash flow has been derived on what Refining NZ considers to be a conservative basis, assuming a terminal period GRM equal to the average real (2012 dollar terms) GRM over the period 2016 to 2025 and normalised operating expenses and capital expenditure. There are other key assumptions which impact NPV and IRR, particularly the US dollar to NZ dollar exchange rate, the crude oil price and the CCR Project cost. The sensitivity of CCR Project returns to these assumptions, is outlined below. Additionally, the risks in achieving the base case returns have been considered and are outlined in the CCR Project Risks section on page 18. THE AVERAGE WACC OF THE NZX50 IS 9.3%. THE AVERAGE WACC OF SEVERAL NZX INFRASTRUCTURE COMPANIES IS 8.2%. (SOURCE: PRICEWATERHOUSECOOPERS COST OF CAPITAL ESTIMATES AS AT 31 DECEMBER 2011 AS PUBLISHED IN THE MARCH 2012 APPRECIATING VALUE NEW ZEALAND REPORT).

19 The sensitivity of IRR and NPV to these assumptions is shown below: Crude price sensitivities CRUDE PRICE ASSUMPTION NPV OF CCR PROJECT Flat US$60 per barrel ~NZ$280 million ~16% ~US$ per barrel to 2025 (base case assumptions) ~US$ per barrel to 2025 (base case assumption + US$30 per barrel) Exchange rate sensitivities ~NZ$340 million ~17% ~NZ$380 million ~18% IRR OF CCR PROJECT The CCR Project and Re-life Project have also been assessed using several other industry standard project evaluation techniques, including return on average capital employed (ROACE) and payback period. The CCR Project measures favourably across all of the evaluation techniques. Additionally, the positive impact of the CCR Project on Refining NZ s financial position is prevalent under a variety of assumption scenarios and operational sensitivities. That is, even in a depressed oil and refining margin environment, attractive returns are offered and firm value is still created relative to the Re-life Project. First NZ Capital has been involved in the assessment and financial modelling of the CCR Project and Re-life Project. Based on the assumptions provided by Refining NZ, First NZ Capital found that the CCR Project is in the best interests of Refining NZ from a financial perspective. The reasons underlying this conclusion are those outlined on pages 15 to 16. A majority of the Board concurs with First NZ Capital s assessment. 16 EXCHANGE RATE ASSUMPTION NPV OF CCR PROJECT IRR OF CCR PROJECT Flat NZ$/US$ 0.85 ~NZ$210 million ~15% NZ$/US$ market forward curve, falling from 0.77 in 2012 to 0.66 by 2020 (base case assumptions) ~NZ$340 million ~17% Flat NZ$/US$ 0.60 ~NZ$395 million ~19% CCR Project capital cost sensitivities CCR CAPITAL COST ASSUMPTION NPV OF CCR PROJECT IRR OF CCR PROJECT Base case plus 10% (~NZ$400 million) NZ$365 million (base case assumption) Base case less 10% (~NZ$330 million) ~NZ$310 million ~16% ~NZ$340 million ~17% ~NZ$360 million ~19%

20 17 Evaluation process Refining NZ management, in co-ordination with the Board and a variety of independent experts, has undertaken a thorough evaluation process in developing the CCR Project. The evaluation process has encompassed business impacts, cost analysis and project design. The key steps in the evaluation process were as follows: In 2005, the Board approved the Point Forward Project, noting that a further project to de-bottleneck the downstream naphtha processing units could be considered at a future date (the CCR Project). In 2009, Refining NZ set up a project team to review potential investment options to grow the Company, the CCR Project was identified as the preferred investment opportunity. In 2010, Refining NZ reconfirmed that the CCR Project was the preferred investment opportunity. In February 2011 the Board approved NZ$23 million for a FEED to freeze design, develop a detailed implementation plan, evaluate project risks and mitigating actions and confirm estimated costs. Management then worked with external advisers to define the market and business premises for assessing the CCR Project s profitability and sensitivity to market factors: Definition of CCR Project CCR Project development, estimating process and execution plan were reviewed at a workshop attended by oil industry experts Hydrocarbon prices and refining margins FGE developed sets of price/margin premises, which have subsequently been reviewed by industry experts nominated by the Board, at a workshop with Refining NZ management Financial premises First NZ Capital provided forecasts for financial premises such as the NZ$/US$ exchange rate, inflation rates and interest rates, sourced from financial market data providers Hale & Twomey provided an outlook for domestic product demand growth based on Ministry of Economic Development energy outlooks and Hale & Twomey forecast models. Specialist advice was provided regarding the future coastal distribution requirements and associated tankage capability to support the incremental production. Input and testing was provided by Coastal Oil Logistics Limited (coastal shipping company) and Refining NZ s customers. In December 2011 these market and business premises were then presented by management to the Board and approved by Directors. Based on these premises, a full financial evaluation of the CCR Project and Re-life Project options was undertaken by management in conjunction with First NZ Capital, with modelling reviewed by PricewaterhouseCoopers. On 21 February 2012 the results of the full financial evaluation were presented to the Board for their consideration. A majority of the Board supported the CCR Project and recommended it for shareholder approval.

21 CCR Project risks 18 There are several project specific risks, including: RISK The CCR Project may not deliver the expected results (e.g. yield improvements). MITIGATING FACTORS/ASSESSMENT The Project will employ technology with a 30-year track record of successful implementation, at over 200 sites across the globe. The technology package engineering, procurement and construction has been tested with consultants and oil company experts. Guarantees of product yields will be granted by the suppliers of the CCR technology (UOP). The product yields have been reviewed by Refining NZ technical advisers. The CCR Project may incur additional costs above its budgeted capital spend. The CCR Project increases Refining NZ s debt level and overall financial risk to shareholders. Potential erosion of petrol pricing and margins due to a global petrol surplus. Potential erosion of Refining NZ s competitiveness versus imports due to a global petrol surplus. Potential customer under-utilisation of incremental processing capacity. Refining NZ has a track record of successful project execution with the recent Point Forward Project rated highly by independent experts. The project execution plan has been developed in consultation with industry experts. Derivatives (e.g. options, foreign exchange contracts) will be used to manage exchange rate exposure. A high level of project definition has been achieved (tested against industry benchmarks) and firm quotes have been obtained from suppliers for major pieces of equipment. Anticipated peak debt levels are still expected to provide a large degree of covenant headroom, and are in line with comparable refineries and other NZX listed companies. The Project delivers increases in revenue and earnings compared to the Re-life alternative. The total annual amount of petrol traded in the Asia-Pacific region is approximately 740 million barrels per annum. The increased production from the CCR Project is approximately two million barrels per annum (0.3% of the Asia-Pacific market). The Project is unlikely to have a noticeable impact in this market. The petrol prices used in the Project evaluation reflect the surplus in terms of lower Singapore marker price quotations and a significantly reduced New Zealand product quality premia than historically achieved. In a worst case scenario, with the product quality premia completely removed, the IRR of the CCR Project would reduce to approximately 16.5% which is still significantly higher than WACC. This is because 72% of the Project benefits are due to improved energy efficiency and reduced fuel and losses (refer to page 15). Refining NZ product mainly competes with imports at the major ports of Mount Maunganui, Wellington and Lyttleton. We can assess our overall supply competitiveness versus imports at these ports by way of a simplified measure: Refining NZ receives 70% of GRM as processing fee, leaving 30% of GRM for customers to pay hydrocarbon working capital costs at Marsden Point plus the costs of shipping the product to the major ports. The CCR Project is expected to add US$1.10 per barrel to the GRM and therefore effectively improves the competitiveness of Refining NZ supply versus imports by US$0.33 per barrel (30% of US$1.10 GRM). Hydrocarbon inventory is not likely to change materially so increased petrol production should reduce unit inventory costs, further improving Refining NZ s competitiveness. If a customer decided to limit its petrol production, then that capacity becomes available to other customers. Our modelling has shown that even if the incremental capacity was under-run by as much as 50%, the CCR Project IRR may reduce to approximately 14% which is still significantly higher than WACC. This reflects the fact that a large proportion of the CCR Project benefits flow from energy savings, reducing the potential impact of this risk. The Board and management considers the business and macroeconomic risks are manageable, and notes that many of these risks would still exist, regardless of whether the CCR Project is carried out or not. The Board considers that the CCR Project improves the Company s competitive positioning when confronted with these risks.

22 The Re-life Project alternative 19 Overview If the CCR Project is not supported by shareholders, then the Company will have to initiate the NZ$105 million Re-life Project in order to sustain refinery operations beyond Shareholders need to exercise a vote in favour of the Ordinary Resolution at the Annual Meeting to be held on 27 April 2012 in order for the NZ$365 million CCR Project to progress. However, if less than 50% of the shareholders voting on the resolution support the CCR Project, the Board will instruct management to proceed with the NZ$105 million Re-life Project. There is no status quo option. Re-life Project scope Current integrity issues with the semi-regeneration platforming unit will need to be addressed if the CCR Project does not go ahead. The scope of the Re-life Project modifications needed to extend the operational life of the unit for an additional 25 years was developed in conjunction with our technical advisers, Shell Global Solutions, and input from experts in the field of New Zealand engineering standards and compliance. The scope was reviewed and agreed by a workshop of industry experts nominated by Directors. The workshop agreed that the logic and time-line on the Re-life Project was sound. The impact of potential risks (especially health, safety and environmental), the uncertainty of discoveries and residual risks, were deemed critical to the decision-making process. The repairs needed in the reaction section of the semiregeneration Platformer are the key component of the Re-life Project scope and are mainly driven by compliance issues. A key part of the works would be to install new reactors in a new structure that would be located outside of the existing unit. Significant repairs and modifications to other structures, foundations, vessels and safe-guarding systems are also required. The capital required for the modifications is estimated to be NZ$105 million. Re-life Project benefits and risks The Re-life Project would extend the operation of the existing 48-year old Platformer for a further 25 years to sustain existing operations. The estimated cost of NZ$105 million can be funded by borrowings. Expected peak debt levels are affordable and provide a large degree of covenant headroom. The Re-life Project does not preclude the CCR being constructed at a later date, should circumstances warrant it. However, the current window of opportunity to avoid spending the NZ$105 million on the existing unit would be missed. FINANCIAL CONSIDERATIONS The Re-life Project is cheaper than the CCR Project but it does not deliver the benefits that would flow through to shareholders, customers and stakeholders from the CCR Project. Because the Re-life Project does not provide any additional financial return, the IRR and NPV would be negative, with no project payback. In simple terms, this means that the benefits accruing to shareholders from an incremental investment of NZ$260 million in the CCR Project would not be realised by the Re-life Project: there would be no GRM uplift, no increase in revenue and no increase in EBITDA. The Re-life Project would allow for higher dividends during the construction (relative to the CCR Project) but thereafter the dividend flow is expected to be significantly lower than under the CCR Project option. The additional GRM and processing fees generated by the CCR Project post commissioning is especially important in periods of low margins in sustaining competitiveness and robust cash flows.

23 Director recommendation OTHER CONSIDERATIONS Refining NZ s competitive position is not improved under the Re-life alternative and is likely to erode over time with increasing pressures from overseas supply sources. Refining NZ benchmarks well against Australian refineries and Asia-Pacific refineries of a similar size, but this may change over time as refineries become more competitive. Existing energy efficiency would be maintained under the Re-life Project, but further improvements are required to reduce our cost base and meet our environmental obligations under our Negotiated Greenhouse Agreement with the Crown. Refining NZ would need to invest in other energy projects to compensate. However, these projects have a much lower payback than the CCR Project and they do not offer the absolute decrease in carbon emissions. The Re-life Project would also forego the potential benefits of the further refurbishment of the petrol making facilities, which would boost petrol production by a further two million barrels per year. RISKS The Re-life Project is less well developed than the CCR Project and involves modifications to a 1960s plant with the risks of significant emergent work. The risk of cost overruns are significantly higher than for the CCR Project. The Re-life Project involves modification to a running plant rather than construction in a green-field location meaning there are more health, safety and environment risks to manage. These risks were successfully managed during the Point Forward Project, but the work on a Platformer involves more process safety risks than on a crude distiller. Additional plant shutdowns may be required to execute the work safely, which will negatively impact refinery operations, product availability and revenues during the Re-life Project. The Directors have given careful consideration over many months to the issues and opportunities which may arise in relation to the CCR Project proposal. Having done so, a majority of the Board is supporting and recommending the CCR Project. Based on analysis undertaken by Refining NZ and its external advisers, the CCR Project is expected to create value for shareholders. 20

24 21 Item 4(a) Item 4(d) RE-ELECTION OF MR D.A. JACKSON M.Com (Hons), FCA, CHAIRMAN Appointed Last elected David Jackson is a Chartered Accountant and a Director of a number of public companies including Pumpkin Patch Ltd, Nuplex Industries Ltd and Fonterra. Mr Jackson is an Independent Director as defined in the NZX Listing Rules. Item 4(b) ELECTION OF MR T.J. WALL BE (Elect), MAICD, MIEAust Appointed Tim Wall is Operations Manager for BP Refinery (Bulwer Island) Pty Ltd. He joined BP in 1987 at Bulwer Island Refinery and has held a variety of roles in Operations, Planning, Engineering, Process Safety and Business Development with BP in both Australia and the United Kingdom. Mr Wall is not an Independent Director as defined in the NZX Listing Rules. Item 4(e) RE-ELECTION OF MR P.J. MORRIS B.Bus, MBA Appointed Last elected Peter Morris is General Manager of Chevron New Zealand. He joined Chevron in 1991 and has held positions in Marketing, Trading, Operations and Strategy in Australia, Thailand, United States, Singapore and New Zealand. Mr Morris is not an Independent Director as defined in the NZX Listing Rules. Item 4(c) ELECTION OF MR A.T. WARRELL MBA, BE (Mech) (Hons) Appointed Andrew Warrell is the Manager of Refining for ExxonMobil s Australia and New Zealand operations. He has more than 21 years of experience with ExxonMobil and has worked in a broad variety of roles with the company. He has recently returned to Australia after more than 10 years in the USA, including working in the Corporate Head office in Dallas Texas and then also the Global Refining and Marketing Head Office in Fairfax Virginia just outside Washington DC. Mr Warrell is not an Independent Director as defined in the NZX Listing Rules. RE-ELECTION OF MR P.M. SPRINGFORD MBA, Independent Director Appointed Last elected Peter Springford is a professional director. He is a Director of Nuplex Industries Ltd, a number of unlisted companies and a trustee of The Graeme Dingle Foundation. He was previously Managing Director and CEO of Carter Holt Harvey Ltd. Mr Springford is an Independent Director as defined in the NZX Listing Rules.

25 The Directors fee pool has remained unchanged since shareholders supported an increase at the 2008 Annual Meeting. This year, shareholders are being asked to approve an increase in the Directors fee pool by NZ$150,000 from NZ$700,000 to NZ$850,000. An increase in the pool is being sought to allow for possible future increases in Directors fees over the next three to five years. The Nominations and Remuneration Committee meets annually to review the level of fees (including any subcommittee fees) paid to the Chairman, Independent Directors and all other Directors. Adopting the pool approach, fees are benchmarked against market data to enable the Nominations and Remuneration Committee to determine the amount of fee increase (if any) that will be awarded. Refining NZ s full Board then considers the recommendation of the Committee and approves (or otherwise) the total allocation from the Directors fee pool. Allocations made from the Directors fee pool for the last five years are as follows: NZ$ NZ$ NZ$ NZ$ NZ$000 Directors fee pool approved by shareholders Total Directors fee allocation % of pool used 94% 93% 90% 82% 99% Directors fees paid as follows: 2007 NZ$000 (No. of Directors) 2008 NZ$000 (No. of Directors) 2009 NZ$000 (No. of Directors) 2010 NZ$000 (No. of Directors) 2011 NZ$000 (No. of Directors) Chairman Independent Director 40 (3) 50 (3) 50 (2) 50 (2) 65 (2) Director 40 (8) 50 (8) 50 (8) 50 (7) 60 (7) Committee fees have been paid as follows: 2007 NZ$000 (No. of Members Remunerated) 2008 NZ$000 (No. of Members Remunerated) 2009 NZ$000 (No. of Members Remunerated) 2010 NZ$000 (No. of Members Remunerated) 2011 NZ$000 (No. of Members Remunerated) Audit and Risk Committee 10 (3) 10 (3) 10 (3) 10 (3) 10 (2) Nominations and Remuneration Committee (3)

26 23 Between 2008 and 2010 Directors fees were held constant. In 2009 the total number of Board members was reduced from 12 to 11 and then in 2010 the Board reduced to 10. In 2011, the base fee was increased from NZ$50,000 to NZ$60,000 per annum. In support of this increase, the Board took into account the inflation rate over the last four years and the movement in market data. The Chairman s fee was set at two times the base fee and the fee payable to the two Independent Directors set at 1.08 times the base fee. The higher fee paid to the Independent Directors is in recognition of their additional roles and responsibilities, including the annual review of Processing Fee Arrangements undertaken on behalf of shareholders. Audit and Risk and Nominations and Remuneration Committees fees are also paid out of the Directors fee pool. A fee of NZ$2,500 per annum, payable to three members of the Nominations and Remuneration Committee, was introduced in Audit and Risk Committee fees have been held constant at NZ$10,000 per annum per remunerated Director. The Chairman, although a member of the Audit and Risk and Nominations and Remuneration Committees, is not remunerated for attendance at those meetings. The changes made in 2011, mean that there is very little headroom left under the current approved Directors fee pool to award any future increases. Therefore, an increase in the pool is being sought to allow for possible future increases in Directors fees taking into account: the need to set fees at a level that will assist in attracting people with the commensurate skills to add value as a Director in the future the time, experience and knowledge that the Directors contribute in the Company the complexity of the Company s business as a toll refiner, competing in the Asia-Pacific market and supplying around 40% of New Zealand s total energy requirements the increased demands on Directors time anticipated through Refining NZ s next phase of growth and the recruitment and appointment of a new Chief Executive for Refining NZ the introduction of a third Audit and Risk Committee meeting each year effective from 1 January Under the NZX Listing Rules, the Directors intended to receive payment and their associated persons are disqualified from voting on this resolution. The associated persons include BP New Zealand Holdings Limited, Mobil Oil NZ Limited, Z Energy Holdings Limited and Chevron New Zealand as some of the Directors of the Company are also employees or Directors of those entities.

27 Glossary CCR CCR Project DCF EBITDA EPS FEED FGE GRM HSE NGA NPV Nominal NZX NZX50 RAP Real Re-life ROACE Continuous catalyst regeneration platformer Construction of a new green field platformer unit with continuous catalyst regeneration Discounted cash flow Earnings before interest, tax, depreciation and amortisation Earnings per share Front end engineering and design Facts Global Energy Gross refining margin Health, safety and environment Negotiated Greenhouse Agreement Net present value Inflated The NZX Main Board operated by NZX Limited The top 50 companies listed on the New Zealand Stock Exchange which meet prescribed size and liquidity thresholds Refinery to Auckland Pipeline Not inflated, i.e dollar terms Refurbishment of the 1960s existing semi-regeneration platformer Return on average capital employed 24 Terminal Growth Rate The average rate of growth in the Company s cash flows post the explicit forecast period (2025) WACC Weighted average cost of capital