Price cutting hits Ampol profit

Press, Volume CXI, Issue 32677, 5 August 1971, Page 16

Price cutting hits Ampol profit

The group net profit of Ampol Petroleum, Ltd, fell 30 per cent to $1,243,000 in the six months to March 31, the directors announced in the mid-year report. The result includes capital profits of $830,000.

This was arrived at after providing sl.lm less for tax at sl.7m (including $lOO,OOO future tax), and $200,000 more for depreciation at $4.4m. Sales and other revenue increased 9.9 per cent to $73.5m during the half-year. The directors said that the principal factors contributing to the lower profit were: I; The substantial additional costs of Gippsland crude oil, including the cost of transport. 2. The continuing delays and inadequate increases granted by the South Australian Prices Commissioner to cover both the additional costs of indigenous crude and other increasing costs.

3. The necessity to purchase, at a higher cost, refined products from the sources other than Ampol’s own refinery to maintain Queensland’s fuel supply. These costs were incurred in this half-year and, as reported in February in the chairman’s address, arose because of mechanical problems in the refinery. 4. The slowing in the rate of growth of consumption of motor spirit and other petroleum products. As an example motor spirit consumption in Australia increased only 3.6 per cent for the half-year, compared.with 7.1 per cent for the corresponding period last year, and this was reflected in sales for the half-year. Nevertheless, Ampol was holding approximately the same percentage of the motor spirit market as at this time last year. 5. Lower margins of profit from sales of products caused by the dumping of foreign petrol at “distresed” prices, principally in Victoria. 6. Industrial unrest. The directors said that Ampol was still being prejudiced by the indigenous crude oil policy of the Federal Government, and was forced to pay more for Gippsland crude oil than all of its international competitors except one. The present price war taking place in Victoria started when the Australian Govern-

ment allowed the importation of foreign petrol at “distressed” prices into Australia. Since then the position had become steadily worse and the company had been forced to forgo a substantial part of profit to sustain dealers and prevent the collapse of the retail marketing structure.

The directors said that the . situation had become so acute that the board of Ami pol Petroleum had urgently requested the Government to • invoke the emergency methods it had at its disposal to i deal with such a problem—| i that is, the Special Advisory Authority, which was able ' promptly to assess such a I situation and take appropri- ! ate measures to correct it until a full Tariff Board inquiry could be conducted. On June 28 the Government advised that it could not grant this request. However, further discussion had taken place with the Federal Government in regard to alternative remedial action and on July 15, the Government gazetted notice of an investigation into dumping of gasoline into Australia. The Australian Lubricating Oil Refinery, in which Ampol has a 25 per cent interest, continued to operate efficiently and profitably. Production of crude from Barrow Island totalled 8,268,462 barrels during the half-year, or an average of 45,431 barrels a day. Since then the production has increased and had reached an average of 48,325 barrels a day during the week ended Julv 9, 1971.

The gas pipeline project from Dongara to Perth, Kwinana, and Pinjarra was progressing very satisfactorily. Sale of gas is projected to

commence early in November this year. A new important discovery was made in the Walyering seismic structure, some 106 road miles north of Perth and only eight miles west of the pipeline route. The discovery well, Walyering No. 1, contained several thick gassaturated sands one of which tested 13.5 m cubic feet of clean gas a day through a Jin surface choke.

The Lytton refinery was now operating satisfactorily and was meeting Ampol’s market demand. A price rise was granted in April and the benefits would accrue to the second half-year, but this was being offset by the current chaotic price war in Victoria. “However, the board underlines the statement made in the chairman’s address to the annual meeting last February dealing with the uncertainties of Government’s attitudes and policies, making( it difficult for the board to predict the profit for the current year,” the directors say. .

“This position still obtains, it has been exacerbated, however, by the chaotic marketing conditions prevailing, principally in Melbourne. A continuation and/or extension of this price-cutting will obviously further erode profitability and create uncertainty as to the rate of the final dividend.”