Viva shares drop out of halt as refinery disruption raises new questions

Viva Energy Group Ltd (ASX: VEA) shares are back on the boards on Monday after a short trading pause last week.

The stock was placed on ice before market open on Thursday, with trading resuming today following a fresh update.

Investors have not reacted well. In early morning trade, the Viva share price is down 5.93% to $2.38.

The move follows a strong run into April, with the stock having pushed higher in recent weeks before the halt was called.

Refinery incident forces production reset

The update centres on an incident at the Geelong refinery, where a fire broke out within part of the gasoline production system last week.

Emergency services were called, and all personnel were accounted for. The fire was contained and later extinguished.

The issue occurred in the Alkylation Unit, which sits within the gasoline complex. While other major processing units were not affected, one key unit remains offline as operations stabilise.

That has led to a temporary drop in output.

In the near-term, the refinery is expected to run diesel and jet fuel production at around 80% capacity, while petrol output is closer to 60%.

Management expects production to recover over the coming weeks, with a return to above 90% capacity flagged, subject to inspections and repair timelines.

Supply holding steady despite disruption

Despite the reduction in output, the company has indicated that fuel supply to customers is expected to remain stable.

Existing inventory levels are being used to cover the shortfall, and there has been no change to broader supply flows into the refinery.

Crude sourcing also remains unchanged. The refinery does not rely heavily on Middle Eastern supply, instead drawing from regions including North and South America, South-East Asia, and Australia.

The company said it has firm crude supply in place through to July, with confidence that deliveries will continue without interruption.

Strong margins meet short-term disruption

The timing of the incident comes after a period of strong operating conditions.

In its quarterly update, Viva reported that the Geelong refinery processed around 10.2 million barrels of crude during the March quarter.

Refining margins were also elevated, with the Geelong Refining Margin sitting at US$22 per barrel for the period.

That reflects a supportive regional environment for refined fuel products, which has been a key driver of earnings across the sector.

But momentum now faces a short-term hit, with output expected to stay below normal levels.

Foolish takeaway

While this looks like a near-term operational setback, it does not point to any broader change in the business.

Refinery issues can take longer to resolve than first expected, and the share price is reflecting that quickly.

Personally, I would watch from the sidelines here.

There is still some uncertainty around timing, and the share price has already had a solid run leading into this.

The post Viva shares drop out of halt as refinery disruption raises new questions appeared first on The Motley Fool Australia.

More reading

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• Why is everyone talking about New Hope, PLS and Viva Energy shares on Thursday?
• Viva Energy shares frozen as overnight refinery fire puts fuel markets on edge

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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 Scott Phillips.