The Viva Energy Group Ltd (ASX: VEA) share price is on the rise this morning following the company’s announcement it has received assistance from the Australian Government.
The company says the assistance will boost its bottom line earnings by $30 million. The Viva Energy share price closed at $2.07 on Friday and, in the opening minutes of today’s trade, has risen 0.97% to $2.09.
What’s driving the Viva Energy share price?
The Viva Energy share price is pushing higher after the company reported the federal government will provide it with an interim refinery production payment for six months from 1 January until 1 July 2021.
This will see the oil refiner receiving a minimum of 1 cent per litre for the production of primary fuels at its Geelong refinery, based on the agreement that it will maintain operations throughout the duration of the payment.
Viva Energy estimates the payment will contribute approximately $30 million to its underlying refining earnings before interest, tax, depreciation, and ammortisation (EBITDA) for the six-month period. This estimate is based on the company’s average historical refining output during the year ended 31 December 2019.
Viva Energy CEO Scott Wyatt said the assistance is a welcome boost to the refinery sector which has been struggling as a result of the COVID-19 pandemic.
He said:
The refining sector has been severely impacted by a significant decline in domestic and global demand for oil products this year, and this is expected to lead to ongoing weakness in refining margins which affects the longer-term viability of our refinery.
The refinery production payment announced today, together with other measures announced in September, provides material support which underscores the importance of domestic refining to the country’s broader fuel security.
Australia’s fuel security
The refinery production payment forms part of the broader, long-term fuel security package previously announced by the federal government in September 2020.
The package is designed to enhance Australia’s fuel security, and improve the viability of the refining sector over the next ten years.
It is expected this week’s mid-year budget review will also include an $83.5 million package to assist oil refineries.
To receive the payment, refineries must agree to continue operating for the duration of the program.
Energy Minister Angus Taylor and his department have recently been working closely with the refining sector to maintain refinery operations during the pandemic.
The ministry said the aim of the package is to help the industry withstand the economic shock of this crisis, protect local jobs and industry, and bolster Australia’s fuel security.
About the Viva Energy share price
The Viva Energy share price has lost more than 9% in value since the beginning of the year.
Viva shares dropped by almost 40% in April, at the height of the pandemic before rebounding to today’s level.
The company commands a market capitalisation of $3.3 billion.
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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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