The Viva Energy Group Ltd (ASX: VEA) share price is up 9% this morning despite the company advising that the impact of Government shutdowns on its operations was uncertain. Performance by different business segments has been mixed as the impacts of coronavirus on different segments of the economy progress.
Aviation
Viva Energy has experienced a significant reduction in aviation fuel demand following restrictions on international air travel and reductions in domestic flight. The company anticipates aviation volumes to be impacted by approximately 80% – 90% while restrictions remain in place.
Commercial and Retail
The Commercial and Retail segments have performed well in the first two months of 2020 with average sales volumes in the Alliance network up 6.1% in January and 5.8% in February. Viva Energy reports retail demand and market margins have been relatively stable.
The significant measures by State and Federal governments to curtail the spread of coronavirus are expected to have some impacts on retail and commercial sales volumes over time. The extent of these impacts, however, remains uncertain and will depend on the scope and duration of reduced economic and social activity.
Refining
Refining operations have been uninterrupted with strong levels of production. The refining margin for both January and February was, however, impacted by higher crude premiums from purchases committed at the end of 2019 as well as lower regional refining margins due to softer global demand.
Crude oil prices and associated premiums have recently declined due to the demand impacts from coronavirus and excess supply from OPEC and other oil producers. A weaker Australian dollar will benefit local refining margins. Regional refining margins may, however, continue to be impacted by lower global demand for oil products in the near term.
Viva Energy is monitoring the situation and will optimise refining operations by adjusting crude oil slate and production profiles in response to market changes.
Capital position
Viva Energy says it has a strong balance sheet and liquidity position. At 31 December 2019, the company had net debt of $137.4 million, with total debt facilities available of US$700 million.
The overall capital position has been supplemented by Viva Energy's sell-down of its investment in Viva Energy REIT Ltd (ASX: VVR) in February. This realised approximately $680 million in after-tax cash proceeds.
With this in mind, Viva Energy believes it is in a strong position to manage the coronavirus response. Nonetheless, the company is taking steps to review operating costs and capital expenditure programs.
