Ampol Ltd (ASX: ALD) shares are on the move on Friday morning.
At the time of writing, the ASX 200 stock is up 4% to $34.29.
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Why is this ASX 200 stock rising today?
The fuel supplier's shares are pushing higher following the release of an announcement outlining changes to the Fuel Security Services Payment (FSSP) and an update on its fuel supply operations.
According to the release, Ampol has welcomed amendments to the FSSP, which is a government support scheme designed to help maintain domestic fuel refining in Australia.
The key change is an increase in the collar, which is the level at which payments begin, from 6.4 cents per litre to 10.0 cents per litre. There is also a favourable adjustment to how refinery margins are calculated for Ampol's Lytton refinery.
Management believes these changes will help reduce earnings volatility and better reflect the higher costs involved in refining fuel.
In simple terms, the FSSP acts as a safety net for refineries when profit margins are weak.
Under the revised structure, Ampol may receive financial support when refining margins fall below certain levels. This support is based on how much fuel is produced.
Ampol estimates this could provide up to $108 million per year in support for its Lytton refinery during periods of low margins.
Supply chain update
The ASX 200 stock also provided an update on fuel supply conditions, particularly in light of ongoing disruption in global oil markets.
Ampol noted that conflict in the Middle East has impacted global supply chains, especially in Asia where much of Australia's imported fuel originates.
However, the company said it was well prepared, with sufficient crude oil and fuel inventories and confirmed supply orders at the start of the disruption.
To further support domestic supply, Ampol has delayed maintenance at its Lytton refinery. This is expected to increase local fuel production by around 300 million litres.
Commenting on the news, the ASX 200 stock's CEO, Matt Halliday, said:
We welcome the adjustments made to the FSSP, which effectively increase the level at which payments under the scheme will commence. The important role Australian refineries play in supporting the resilience of our domestic fuel supply is being reinforced in the current global oil market environment. The amendments recognise the significant cost increases, and capital investment made, since the scheme began in 2021 and the importance of maintaining an economically viable domestic oil refining capability in Australia for the medium term by providing support when refiner margins do not cover the cost of production.
The amendment of the collar to 10 Acpl and the favourable adjustment to the Government's refiner margin calculation, will also assist in reducing the volatility in Lytton earnings over time. We look forward to continuing the dialogue with the Federal Government in the months ahead on the long-term prospects for transport fuels refining in Australia.
