July 30, 2025 • 28 mins
Are we stabilising NZ’s energy supply? We sit down with Rob Buchanan, CEO, to explore Channel Infrastructure’s transformation from a refinery to a critical import terminal. Major clients include BP and ExxonMobil, with over 300 million litres of fuel at their Marsden Point site.
How does Rob plan to improve New Zealand's fuel security? What’s his take on energy demands from emerging tech like AI? Is biofuel the next big thing?
Hear about plans to develop Channel Infrastructure's land and pipeline assets into a new ‘energy precinct’, potentially bringing 20,000 jobs to Northland during its build phase.
Plus, how Rob plans to keep delivering dividends to shareholders while pursuing big growth projects.
For more or to watch on YouTube—check out http://linktr.ee/sharedlunch
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Hey, order and welcome to shared Lunch. My name is
Susanna Batley and I'm at Channel Infrastructure's head office here
in Auckland. I'll be joined by Robie Cannon, the CEO.
Speaker 2 (00:14):
More than ever energy security. If fuel security is really
important to economic prosperity.
Speaker 1 (00:20):
Channel Infrastructure was once an oil refinery and it's going
through a major transition.
Speaker 2 (00:24):
There was a really significant opportunity to build a real
future for the company and bring back much more, hopefully
than what was lost when the refinery was closed.
Speaker 1 (00:33):
It's got a big, bold vision to become an energy
precinct caring New Zealand's future energy resilience and decarbonization.
Speaker 2 (00:40):
We've got a really awesome opportunity to be transformational for
Ausland and New Zealand. That could be twenty thousand jobs
are significant tributor to GDP.
Speaker 1 (00:49):
Before I head upstairs, here's some important information.
Speaker 3 (00:52):
Investing involves the risk you might lose the money you
start with. We recommend talking to a licensed financial advisor.
We also command reading product disclosure documents before deciding to invest.
Everything you're about to see and here is current at
the time of recording.
Speaker 1 (01:06):
Welcome Rob, Thank you, sus I should probably say things
for having me here at your premises.
Speaker 2 (01:11):
We're delighted to have you. Thank you very much for
giving us your time.
Speaker 1 (01:15):
So I'm keen to start by zooming out a bit
and hearing a bit more about some of the big
energy changes that are happening in New Zealand, and then
in particular, what are the challenges and opportunities and how
Channel might be uniquely positioned to either sold for those
challenges or take advantage of those opportunities.
Speaker 2 (01:35):
I guess I'll start with a really big picture global context.
We're finding ourselves in a more contested environment and I
think more than ever energy security. Fuel security is really
important to economic prosperity and everybody having a certainty that
they can get on and invest in what they're doing
(01:56):
in New Zealand, and so Channels are really able to
provide or help provide that fuel security piece. It's a
core part of what we do. We store over three
hundred million liters of petrol, diesel and jet up at
Marsden Point, and we're currently in the process of bringing
in place additional storage. We've got another three hundred and
(02:16):
fifty million liters of empty tanks up there that we
can convert, which we've got quite good at and that
obviously adds to overall New Zealand fuel security. I think
one of the other challenges as we've gone through the
energy transition, trying to transition to a renewables electricity system
has been that firming capacity or generation that can come
(02:39):
on or off at short notice when the sun's not
shining or the wind's not blowing and it's not raining,
which has been doing a lot of lately. And that's
another area where channel can play a part. So we're
looking at a diesel peaker at the moment. If all
of our fuel tanks at Marston Point were full, we'd
(03:00):
actually have as much stored energy up at Marston Point
as you would have and like Pookeke in the South Island,
so huge amount of stored energy and the potential for
that to just firm that that electricity system will add
to that firming.
Speaker 1 (03:14):
And in terms of that firming and so the amount
that might be required to support the sort of largely
renewables in terms of energy generation in New Zealand, do
you see that sort of going down as we're bringing
on more renewables or you know, on the demand side,
Obviously the demand for electricity is going up. We've got AI,
(03:35):
we've got data centers that support that, we've got electrification
of automobiles and other industrial plants. So how do you
think about that sort of supply versus demand and what
that firming profile might look like in the future.
Speaker 2 (03:50):
Well, there's no question in my mind that demand for
electricity will continue to grow. And I like data centers
as a classic example. They use a lot of electricity
and they use it twenty four to seven. And so
the challenge for us in New Zealand is matching up
that twenty four to seven usage of data centers or
manufacturing that just needs to be able to turn on
and have the power available to use at a cost
(04:13):
effective price. Is that our system is actually quite renewable,
and we've got and it's fairly well known. I think
most people know that gues is declining in New Zealand,
and so that used to be the fuel that plugged
the gap, and now we're relying on whole and there's
(04:34):
only so much call FID capacity in New Zealand as well.
So that's where we see diesel picking or maybe other
forms of gas peaking as being an opportunity to switch on,
make sure that the power is there when folks need it.
But ultimately, hopefully over time the New Zealand electricity system
(04:55):
fully renewabilizers and the need for that firming thes great.
Speaker 1 (05:00):
If that is the case, what happens to your role
as part of that well.
Speaker 2 (05:06):
I think at the moment, the way we're thinking about
the diesel picker option for our site is that it's
there for when as long as it's needed, and we'll
see how long that is. One of the options we're
looking at is containerized units so that they can just
be broad in across the wharf, across the road, planted down,
(05:26):
probably turned on for very short duration during them during
a year, and then if we do get to a
point in our system where it's no longer required, then
you know, those units can go back offshore and we
can get value for them. I think, from Channel's perspective,
the way we interact with our customers, one of our
key requirements is that we have long term contracts and
(05:48):
we're not an electricity participant. We have no electricity trading capacity,
so you know that project would only get developed and
built if there are other parties in the electricity sector
that would basically take that capacity off their hands.
Speaker 1 (06:02):
Yeah, their risk it correct. Yeah. So in terms of
customers then that you mentioned who.
Speaker 2 (06:07):
Are they at the moment, our three key customers are
bp X on Mobile and Ample and you'll have seen
also that we will soon be welcoming Higgins to our
site is one of our newest customers of the new
e bitumen import terminal.
Speaker 1 (06:23):
As well, you're clearly needing to balance a lot of stakeholders.
I'm sure there's you know, quite a lot of path
and safety things to think about with your employees. So
how do you your shareholders obviously as a listed company,
so how do you think about balancing those different stakeholder
interests and how you're making sure that you're generating a
good sheld of return while also making sure that from
(06:46):
a U yelling in point of view, that you're also
fulfilling that role as well.
Speaker 2 (06:50):
You know, the way I look at it is that
they're all very important. He mentioned health and safety. It's
absolutely core to what we do and you know, getting
everybody home safely every day is a core value for Channel.
And if I zoom out on health and safety and
safety in general, the role that we provide, and that
(07:11):
field security piece means that we need to have a
safe and resilient operation as well. You know, obviously, our
customers are a key stakeholder and we spend a lot
of time with them making sure that we can service
their needs. And the government's obviously very interested in what
we do, and shareholders obviously as well, So a very
(07:33):
broad set of stakeholders, and I think as a company
we're really privileged to be able to interact and serve
all of them.
Speaker 1 (07:39):
In terms of those current customers and then future ones
like Higgins as part of factures coming on board. You
have talked about this transition and this new vision of
an energy precinct. Can you talk a bit more about
that and particularly why now, why is now the right
time for that transition.
Speaker 2 (07:58):
On first of April twenty two two, we close the
refinery and we converted to an import terminal and upon
that closure, you know, the key assets that earn the
I think last year we earned ninety five point one
million dollars of EBITDA. The key assets that earned that
were effectively the tank farm, are the port that we
(08:18):
operate and the pipeline to Auckland. Now those assets cover
are only thirty or thirty five percent of our one
hundred and eighty hectares of land that we've got up
at Marsden Point. So it's part of that transition and
reinvention of our company into a new business. We thought
long and hard about what the alternative and highest and
(08:39):
best use for that land is. And if you look
at the characteristics of the land, so we're adjacent to
a port or our Gety which is actually currently only
really thirty thirty five percent utilized a significant amount of capacity,
and our Gety, the land itself is only around thirty
thirty five percent utized. We've got a significant amount of
land and we've got a pipe line all the way
(09:00):
to Auckland, So if you make a product and we
can get it into that pipeline, we can get it
all the way down into the heart of industrial New Zealand.
In addition to that, we have a very attractive resource
consents for fuels manufacture which persists for thirty five years
from twenty twenty two when they were re issued or
twenty twenty one. And we've got a very attractive zoning package.
(09:25):
So the zone that we sit in is actually literally
called called the Marsden Point Energy Precinct, and so we
looked at all those features. We realized that there was
it went very many places in New Zealand that you
could build, for example, butcham an import terminal or a
renewable fuels manufacturing site or additional fuel storage, and that
(09:48):
there was a really significant opportunity to build a real
future for the company and bring back perhaps much more
hopefully than what was lost when the refinery was closed.
Speaker 1 (10:00):
In terms of that that capacity that you've got both
in the land and in the in the in the pipeline.
What does an ideal customer look like like? Presumably you're
talking to other potential customers, you know, like l like Higgins,
what what makes an ideal tenant or customer of the site?
Speaker 2 (10:18):
You know, the first comment to be would be, well,
we've got a lot of empty tank crew tank still,
so you know, we would love customers for those for
our core fuel storage business, and obviously we've got existing
customers that might have interested in those. I think, you know,
the thing I'd speak to and we've spoken about publicly
is the bio Refinery project with the consortium of Sedra Quantas,
(10:44):
who will be well known Renova, who are Japanese real
electricity and fuels manufacturer, a n Z Bank and Kent
who are working to repurpose some of the old refining
equipment into a biofuel's menu facturing facility. And if you
think about you know, it's a few things, a few
(11:06):
reasons why that would be really epic for both our
region and New Zealand. Firstly, buyo fuels and manufactured from
feedstocks which tend to be local. So whether you import
crude into New Zealand or you ship crude into Asia
and refine it and bring it down in a boat,
you've still got a feedstock that's got a transit international
(11:27):
waters which carries risk. You know, the great thing about
buio fuels is you can manufacture them from domestic feedstocks.
So all of a sudden you've actually got your own
self sufficient fuel industry, which is fantastic for fuel security. Obviously,
there's a hell of a lot of jobs and economic
growth and investment associated with that facility should it go ahead,
(11:47):
it would be incredibly large. Channels expertise today is in
the management of a high hazard facility and fuels infrastructure,
and our shareholders invest in us for the regular dividends
and the long term contracted returns we're able to provide them,
and so our role in this project is really is
(12:07):
if you like enabler. So you know, we've got a
big piece of land and some ex refining equipment that
we can provide them and steady rental income on. You know,
we've got some empty tanks which I think they'd like
to use for their project, which you know we can
earn revenue from, and we've got a jetty in a
pipeline in terms of getting that product in and out.
(12:30):
So I think from our perspective, we're being quite careful
about where we play in these new projects. We're not
here to expose shareholders to a significant amount of development risk.
We know they like investing in us because of those
long term, stable returns, and that's the position we've crafted
for ourselves.
Speaker 1 (12:49):
Is that helpful now with I guess some of these
bigger opportunities that probably do require a significant capital expenditure.
You did go back to the market's last year and
raise fifty million, but some of the quantums on some
of the projects are a lot more than that. How
are you thinking about funding those versus you know, a
(13:11):
regular dividend that maybe shareholders expect now and is that,
you know, is that the right capital structure that sets
you up for success for this growth.
Speaker 2 (13:21):
So at our annual shareholders meeting, we talked about actually
increasing our dividend payout ratio. So you know, we're very
committed to those dividends. And I think the capital rays
we did last year was extraordinarily successful. In fact, I
think I'll get the stats wrong, but it had one
of the highest take ups for a rights issue structured
(13:42):
in that way ever in New Zealand. And you know,
fundamentally the reason that people I think backed us for
that is, you know, the projects that we brought forward
and if I take the jet tank or I take
the bitumen terminal facility, you know, largely the fee that
we earn on those are capacity based. So we're not
(14:03):
taking a significant newspect about development risk before we're not
taking a significant amount of operating risk associated with those assets.
The risk follows the parties that are best able to
manage that risk, which is generally our customers. And so
from our perspective, we're playing to our strengths, which is
management of a high hazard facility and long term infrastructure
(14:23):
and we're letting our customers and partners play to their strengths,
which is management of the product that they ultimately want
to get into New Zealand store and distribute to where
it needs to go. So I think from my perspective,
you know, I think shareholders are attracted to that type
of model, and I think as long as we stick
to that type of model, you know, I'm really confident
that we can raise the capital that we need to
(14:45):
fund these projects and.
Speaker 1 (14:47):
On those contracted revenues and contracts that you enter into
with the customers. With the move of shutting down the refinery,
you know, revenues less dependent on fuel volley, But what
does that do to the potential for upside? So it's
greater protecting the downside risk, but where is the upside
(15:08):
for equity returns?
Speaker 2 (15:11):
Yeah, So I think I think the way I look
at the business is we've got this core, defensive infrastructure
business with long term contracts with our customers, and that's
in a place where I think we're up to you know,
roughly fifty percent of our revenue last year or this
year is fixed, so not dependent on volume threeput, And
(15:31):
I think investors take a lot of comfort from that.
I think the upside comes from our ability to deliver
the growth projects, and so last year we committed to
fifty five to I think sixty five or sixty two
million of new growth projects that we're at attractive returns,
and that is the Bitchumen terminal and the tank that
we're talking about, and we've spoken this year about and
(15:54):
in this conversation about some of the other projects that
we've got growth projects that we're working on, like the
the capacity based diesel peak, like the Buyer refinery project,
where you know, we're able to in a really smart
way use our existing assets, use our existing land to
provide additional revenue and returns to shareholders. But the returns
(16:17):
and revenue associated with those deals are likely to be
the same contracted, capacity based type deals that you've seen
from us in the past, because we know that shareholders
like them. So that's that's one part of the upside.
I think the other for us is over the course
of the past eighteen months, you know, three of our
major shareholders sell down the three customers actually that we have,
(16:41):
which is a legacy they holding their head when we
were a refinery, and that to me speaks to their
discipline about recycling capital, and we see an opportunity for
us to help them recycle capital and other terminal assets
they might own in this part of the world as well.
Because we're not the only terminal in New Zealand. There's
a bun from others. There is one actually just downstream
(17:02):
from us. And so from my perspective, you know, we're
here saying we've got capital to invest. You know, we're
a good owner and manager of these assets. That's why
customer relationship piece is so important, and you know, we
can take a long term, long term view and allow
our customers to reinvest their capital elsewhere in their supply chain.
Speaker 1 (17:24):
Your background is that you've headed up M and A
for a large, a recent bank. Outside of maybe those
terminal assets, is there any other sorts of assets that
could be quite attractive, particularly because of maybe capabilities, expertise,
other sort of assets and experience that channel might have
that they could leverage.
Speaker 3 (17:44):
Yeah.
Speaker 2 (17:44):
One of the lessons that I've learned from doing twenty
years of M and A is you need to look
really long and hard at what your own capabilities are
as a business and ask yourself, you know, can you
actually manage what you're buying better than the person that's
selling it to you. And I think in relation to
terminals sets, you know, I think we've got we managed
(18:05):
New Zealand's largest terminal by a country mile. We've made
some really good operational improvements over the last couple of years.
Really proud of the way the team's delivered that, and
I think, you know, that's earned us the right to say, well,
we are really good owners and managers of those assets.
And so I think we're pretty disciplined about the types
of sets that we'll look at, actually, and I think
(18:27):
focused on those where we can add value as a
management team and as an operator and sticking sticking to
those now. It might be in the future that we
build additional capability and we say, hey, we've got a
capability that we can go and export, or you know,
there's an asset that comes with the team that has
a great capability. But I think for the business as
(18:48):
it stands today, that's really our focus.
Speaker 1 (18:50):
So it's really asking the question, are we the highest
value owner of this asset? It's right, I'm not just
trying to get a bargain for a sort of random
asset that might not be so strategically alone.
Speaker 2 (19:00):
You shouldn't and you can't do M and A for
M and a's sake. You do it because you see
it gives you a competitive advantages of business, helped solve
your customers problems in our case, and that most importantly,
we can add venue to shareholders and if it doesn't
tack those boxes, then we shouldn't be doing it.
Speaker 1 (19:19):
So you did mention that twenty years experience doing a
lot of different M and A deals. Was going into
an executive position always part of your plan? Or was
that more sort of an opportunity that came up.
Speaker 2 (19:31):
I think, if you want to be really real about it,
I don't think becoming an investment banker was ever part
of my plan. I went to university to study computer science,
took one finance course, and almost by accident, just kept going.
And when I finished university, most of the cool kids
were trying to get internships at banks and those types
(19:53):
of things. So I just did what everybody else did it.
So from my perspective, I found myself twenty years into
an investment banking career. I think one of the privileges
of that is that you work with companies in their
best moments and in the worst moments. You know, I
saw a lot of really good decisions and I saw
some not so good decisions, and you learn a lot
(20:15):
in that. I think personally, I'd achieved a lot in
that part of my career and I was kind of
ready to move on to the next thing. And actually,
you know the role well. The two roles that I've
had since I transitioned out of banking have both been
with really good clients. When I was working at Full
South bar and moved on to Manua, you know, they
(20:39):
were a client at the time, and I knew that
business really, really well, So I think that helps with
that familiarity. But yeah, look, I think I wouldn't say
it had always been part of the plan, but certainly
increasingly it was part of the plan. And I'm really
excited by what I'm doing now.
Speaker 1 (20:56):
You talked about seeing both good decisions and not so
good decisions. A key part I imagine of being a
CEO is that you really have to live through the consequences,
both good and bad, of those decisions. What has been
some of the biggest learnings you've had as you've made
that transition from advising to sort of you know, seeing
(21:18):
the consequences both good and bad, of any of the
decisions that are being made.
Speaker 2 (21:21):
Having a really good team around you is everything. And
having a team that aren't afraid to put their hand
up when they think you're making a bad decision or
we're not heading in the right direction. And so, you know,
what I really value about our team at Channel is
everybody is upfront and straight up about what they think,
(21:42):
and we have really good discussions about all the decisions
that we make. You know, that healthy culture of challenge
and debate leads you to making really good decisions. And
so for me, being surrounded by soper smart people who
are passionate about what we're doing, passionate about the mission,
want the best for the company, and each bring different
(22:03):
perspectives to a decision, whether it's operational, financial, strategic, commercial risk,
and each bring that lens from my perspective. I think
that's how we make good decisions as a company.
Speaker 1 (22:17):
And as you say, when you do have those diverse opinions,
it's almost impossible to get consensus straight away.
Speaker 2 (22:23):
I almost worry if everybody agrees with something because it
makes me wonder, have we really tested this right? And
so Yeah, that's why really diverse team of talented people
is such an important part of a high performing business.
And people that are unafraid to provide their opinions, good
fact based discussion and you know, ultimately contribute to the
(22:47):
success success of the company.
Speaker 1 (22:50):
So in terms of that success of Channel Infrastructure, if
we fast forward five years or maybe even ten years
and things have turned out really well, what is Channel Infrastructure.
Speaker 2 (23:00):
Well, we've got a really awesome opportunity to be transformational
for Northland and New Zealand. As I said, so the
development of the Energy Precinct, you know, I think you've
seen the numbers. You know, during the build phase that
could be twenty thousand.
Speaker 1 (23:15):
Jobs, just a massive for fifteen years.
Speaker 2 (23:17):
Over fifteen years, you know, it could be over eleven
hundred jobs on an ongoing basis, a significant contributed to GDP.
You know, depending on the projects that we can bring
to be, you know, we will be really additive to
New Zealand energy and fuel security because that's what the
Energy Precinct is designed to do. And you know, I
(23:38):
think if we did that, you know, for Northland and
New Zealand, that would be epic, That would be just
such a such a great outcome and where you know,
the energy Precinct is a long term plan and there
will be ups and downs on projects that happen and don't,
but I think we all see the potential there and
the awesome economic potential for Northland and the awesome you know,
(24:01):
opportunity for that energy and fuel security piece.
Speaker 3 (24:05):
You know.
Speaker 2 (24:05):
The other comment I would make is that my hope,
certainly within fifteen years, is that we aren't just based
at marson Point or don't just have as sets at
Marston Point to Auckland. That we're a bigger company than that.
We've got a bigger footprint.
Speaker 1 (24:18):
Their precinct is a real long term investment. Some of
the numbers are you know, I've got big scale. I
think PETWC estimated about two point three billion dollar contribution
to the to the GDP. That that might make you know,
things around us are changing all the time, and it
feels if anything like the rate of change is getting faster,
(24:40):
not slower. How do you think about building a long
term strategy, and particularly one where it does require significant
capex upfront when things change so much?
Speaker 2 (24:52):
Yeah, well, firstly that's why partners are really important. I
think we need to be really humble in New Zealand,
that we won't have all the right ideas and the solutions.
And there's a whole bunch of really big companies and
some small companies out there in the world doing some
really interesting things in this space, and we need to
bring their expertise in capital as relevant. So, you know,
I think that's part of how we de risk this
(25:14):
for Channel and our investors. So from my perspective, partners
are key to that. I think being willing to be
patient and pivot as well. So said, this won't be
a linear journey. And you know, probably two years ago,
did I think that you know, we would have need
(25:36):
for a diesel peaker or on the site or that
might be something that New Zealand would need. And so
I think you've always got to be scanning on the horizon.
Where are the opportunities, How can we contribute as a company,
What is our unique competitive advantage that we can bring
to something, and who can we partner with to help
(25:59):
make it happen. And you know, if it happens that great,
that's great. And if it doesn't, then you know, maybe
it sits there for five years and it happens in
five years, or maybe it pivots to something else. I
mean if you think about, you know, the Buyer refinery project,
that's the ultimate pivot because we're turning what was some
old refining kit into something that is new and you
(26:21):
could make a really significant economic contribution to New Zealand.
Speaker 1 (26:25):
If you were an investor thinking about channel infrastructure as
an investment, what would be the metrics that you would
be looking at. We talked about dividend, so divin yield
is one, but what are some of those other metrics
that you would think about tracking over time to assess
whether channel of structure is being well run and doing well.
Speaker 2 (26:44):
So the measure that I would look at so this
dividend and free cash flow? Right, and the reason that
free cash flow is so important and actually you look
at it across any business you invest in, not just channel.
You know, that is a true measure for the cash
that the business is reducing. And so you know ebit
DA can have you know, when people talk about revenue
(27:05):
and ebit DAR, you know there's pros and cons with
those measures, but free cash flow is the yearnings less,
the sustainable capex, less your interest costs, so you know
it's a true measure of the cash that the business
is producing, and I think scheerholders should look at that.
I wouldn't want to give anybody any financial advice, but
(27:26):
I'd I certainly look at it at any investment that
I look at, not just not just channel. And that's
a metric that we are focused on as a company
because you know, we need to balance you know, the
long term nature of our business and making sure that
we make good, disciplined investments in our assets to ensure
that they're there for a very long period of time,
(27:47):
so that that's covered in the KPEX part of it.
And then there's the yearnings part of it, or the
cash that the business generates as well, which is a
reflection of the enterprise or the job that we do well.
Speaker 1 (27:59):
I think we're I'm here, but thank you so much
for what has been a really interesting conversation.
Speaker 2 (28:04):
Thank you, suys, really appreciate it.
Speaker 1 (28:06):
Thanks for tuning in. Everyone. You can get Shared Lunch
on YouTube or wherever you get your podcasts. Leave us
a rating and let us know what you'd like to
hear about next. Have a good wish of your week.
Hey, order and welcome to shared Lunch. My name is
Susanna Batley and I'm at Channel Infrastructure's head office here
in Auckland. I'll be joined by Robie Cannon, the CEO.
Speaker 2 (00:14):
More than ever energy security. If fuel security is really
important to economic prosperity.
Speaker 1 (00:20):
Channel Infrastructure was once an oil refinery and it's going
through a major transition.
Speaker 2 (00:24):
There was a really significant opportunity to build a real
future for the company and bring back much more, hopefully
than what was lost when the refinery was closed.
Speaker 1 (00:33):
It's got a big, bold vision to become an energy
precinct caring New Zealand's future energy resilience and decarbonization.
Speaker 2 (00:40):
We've got a really awesome opportunity to be transformational for
Ausland and New Zealand. That could be twenty thousand jobs
are significant tributor to GDP.
Speaker 1 (00:49):
Before I head upstairs, here's some important information.
Speaker 3 (00:52):
Investing involves the risk you might lose the money you
start with. We recommend talking to a licensed financial advisor.
We also command reading product disclosure documents before deciding to invest.
Everything you're about to see and here is current at
the time of recording.
Speaker 1 (01:06):
Welcome Rob, Thank you, sus I should probably say things
for having me here at your premises.
Speaker 2 (01:11):
We're delighted to have you. Thank you very much for
giving us your time.
Speaker 1 (01:15):
So I'm keen to start by zooming out a bit
and hearing a bit more about some of the big
energy changes that are happening in New Zealand, and then
in particular, what are the challenges and opportunities and how
Channel might be uniquely positioned to either sold for those
challenges or take advantage of those opportunities.
Speaker 2 (01:35):
I guess I'll start with a really big picture global context.
We're finding ourselves in a more contested environment and I
think more than ever energy security. Fuel security is really
important to economic prosperity and everybody having a certainty that
they can get on and invest in what they're doing
(01:56):
in New Zealand, and so Channels are really able to
provide or help provide that fuel security piece. It's a
core part of what we do. We store over three
hundred million liters of petrol, diesel and jet up at
Marsden Point, and we're currently in the process of bringing
in place additional storage. We've got another three hundred and
(02:16):
fifty million liters of empty tanks up there that we
can convert, which we've got quite good at and that
obviously adds to overall New Zealand fuel security. I think
one of the other challenges as we've gone through the
energy transition, trying to transition to a renewables electricity system
has been that firming capacity or generation that can come
(02:39):
on or off at short notice when the sun's not
shining or the wind's not blowing and it's not raining,
which has been doing a lot of lately. And that's
another area where channel can play a part. So we're
looking at a diesel peaker at the moment. If all
of our fuel tanks at Marston Point were full, we'd
(03:00):
actually have as much stored energy up at Marston Point
as you would have and like Pookeke in the South Island,
so huge amount of stored energy and the potential for
that to just firm that that electricity system will add
to that firming.
Speaker 1 (03:14):
And in terms of that firming and so the amount
that might be required to support the sort of largely
renewables in terms of energy generation in New Zealand, do
you see that sort of going down as we're bringing
on more renewables or you know, on the demand side,
Obviously the demand for electricity is going up. We've got AI,
(03:35):
we've got data centers that support that, we've got electrification
of automobiles and other industrial plants. So how do you
think about that sort of supply versus demand and what
that firming profile might look like in the future.
Speaker 2 (03:50):
Well, there's no question in my mind that demand for
electricity will continue to grow. And I like data centers
as a classic example. They use a lot of electricity
and they use it twenty four to seven. And so
the challenge for us in New Zealand is matching up
that twenty four to seven usage of data centers or
manufacturing that just needs to be able to turn on
and have the power available to use at a cost
(04:13):
effective price. Is that our system is actually quite renewable,
and we've got and it's fairly well known. I think
most people know that gues is declining in New Zealand,
and so that used to be the fuel that plugged
the gap, and now we're relying on whole and there's
(04:34):
only so much call FID capacity in New Zealand as well.
So that's where we see diesel picking or maybe other
forms of gas peaking as being an opportunity to switch on,
make sure that the power is there when folks need it.
But ultimately, hopefully over time the New Zealand electricity system
(04:55):
fully renewabilizers and the need for that firming thes great.
Speaker 1 (05:00):
If that is the case, what happens to your role
as part of that well.
Speaker 2 (05:06):
I think at the moment, the way we're thinking about
the diesel picker option for our site is that it's
there for when as long as it's needed, and we'll
see how long that is. One of the options we're
looking at is containerized units so that they can just
be broad in across the wharf, across the road, planted down,
(05:26):
probably turned on for very short duration during them during
a year, and then if we do get to a
point in our system where it's no longer required, then
you know, those units can go back offshore and we
can get value for them. I think, from Channel's perspective,
the way we interact with our customers, one of our
key requirements is that we have long term contracts and
(05:48):
we're not an electricity participant. We have no electricity trading capacity,
so you know that project would only get developed and
built if there are other parties in the electricity sector
that would basically take that capacity off their hands.
Speaker 1 (06:02):
Yeah, their risk it correct. Yeah. So in terms of
customers then that you mentioned who.
Speaker 2 (06:07):
Are they at the moment, our three key customers are
bp X on Mobile and Ample and you'll have seen
also that we will soon be welcoming Higgins to our
site is one of our newest customers of the new
e bitumen import terminal.
Speaker 1 (06:23):
As well, you're clearly needing to balance a lot of stakeholders.
I'm sure there's you know, quite a lot of path
and safety things to think about with your employees. So
how do you your shareholders obviously as a listed company,
so how do you think about balancing those different stakeholder
interests and how you're making sure that you're generating a
good sheld of return while also making sure that from
(06:46):
a U yelling in point of view, that you're also
fulfilling that role as well.
Speaker 2 (06:50):
You know, the way I look at it is that
they're all very important. He mentioned health and safety. It's
absolutely core to what we do and you know, getting
everybody home safely every day is a core value for Channel.
And if I zoom out on health and safety and
safety in general, the role that we provide, and that
(07:11):
field security piece means that we need to have a
safe and resilient operation as well. You know, obviously, our
customers are a key stakeholder and we spend a lot
of time with them making sure that we can service
their needs. And the government's obviously very interested in what
we do, and shareholders obviously as well, So a very
(07:33):
broad set of stakeholders, and I think as a company
we're really privileged to be able to interact and serve
all of them.
Speaker 1 (07:39):
In terms of those current customers and then future ones
like Higgins as part of factures coming on board. You
have talked about this transition and this new vision of
an energy precinct. Can you talk a bit more about
that and particularly why now, why is now the right
time for that transition.
Speaker 2 (07:58):
On first of April twenty two two, we close the
refinery and we converted to an import terminal and upon
that closure, you know, the key assets that earn the
I think last year we earned ninety five point one
million dollars of EBITDA. The key assets that earned that
were effectively the tank farm, are the port that we
(08:18):
operate and the pipeline to Auckland. Now those assets cover
are only thirty or thirty five percent of our one
hundred and eighty hectares of land that we've got up
at Marsden Point. So it's part of that transition and
reinvention of our company into a new business. We thought
long and hard about what the alternative and highest and
(08:39):
best use for that land is. And if you look
at the characteristics of the land, so we're adjacent to
a port or our Gety which is actually currently only
really thirty thirty five percent utilized a significant amount of capacity,
and our Gety, the land itself is only around thirty
thirty five percent utized. We've got a significant amount of
land and we've got a pipe line all the way
(09:00):
to Auckland, So if you make a product and we
can get it into that pipeline, we can get it
all the way down into the heart of industrial New Zealand.
In addition to that, we have a very attractive resource
consents for fuels manufacture which persists for thirty five years
from twenty twenty two when they were re issued or
twenty twenty one. And we've got a very attractive zoning package.
(09:25):
So the zone that we sit in is actually literally
called called the Marsden Point Energy Precinct, and so we
looked at all those features. We realized that there was
it went very many places in New Zealand that you
could build, for example, butcham an import terminal or a
renewable fuels manufacturing site or additional fuel storage, and that
(09:48):
there was a really significant opportunity to build a real
future for the company and bring back perhaps much more
hopefully than what was lost when the refinery was closed.
Speaker 1 (10:00):
In terms of that that capacity that you've got both
in the land and in the in the in the pipeline.
What does an ideal customer look like like? Presumably you're
talking to other potential customers, you know, like l like Higgins,
what what makes an ideal tenant or customer of the site?
Speaker 2 (10:18):
You know, the first comment to be would be, well,
we've got a lot of empty tank crew tank still,
so you know, we would love customers for those for
our core fuel storage business, and obviously we've got existing
customers that might have interested in those. I think, you know,
the thing I'd speak to and we've spoken about publicly
is the bio Refinery project with the consortium of Sedra Quantas,
(10:44):
who will be well known Renova, who are Japanese real
electricity and fuels manufacturer, a n Z Bank and Kent
who are working to repurpose some of the old refining
equipment into a biofuel's menu facturing facility. And if you
think about you know, it's a few things, a few
(11:06):
reasons why that would be really epic for both our
region and New Zealand. Firstly, buyo fuels and manufactured from
feedstocks which tend to be local. So whether you import
crude into New Zealand or you ship crude into Asia
and refine it and bring it down in a boat,
you've still got a feedstock that's got a transit international
(11:27):
waters which carries risk. You know, the great thing about
buio fuels is you can manufacture them from domestic feedstocks.
So all of a sudden you've actually got your own
self sufficient fuel industry, which is fantastic for fuel security. Obviously,
there's a hell of a lot of jobs and economic
growth and investment associated with that facility should it go ahead,
(11:47):
it would be incredibly large. Channels expertise today is in
the management of a high hazard facility and fuels infrastructure,
and our shareholders invest in us for the regular dividends
and the long term contracted returns we're able to provide them,
and so our role in this project is really is
(12:07):
if you like enabler. So you know, we've got a
big piece of land and some ex refining equipment that
we can provide them and steady rental income on. You know,
we've got some empty tanks which I think they'd like
to use for their project, which you know we can
earn revenue from, and we've got a jetty in a
pipeline in terms of getting that product in and out.
(12:30):
So I think from our perspective, we're being quite careful
about where we play in these new projects. We're not
here to expose shareholders to a significant amount of development risk.
We know they like investing in us because of those
long term, stable returns, and that's the position we've crafted
for ourselves.
Speaker 1 (12:49):
Is that helpful now with I guess some of these
bigger opportunities that probably do require a significant capital expenditure.
You did go back to the market's last year and
raise fifty million, but some of the quantums on some
of the projects are a lot more than that. How
are you thinking about funding those versus you know, a
(13:11):
regular dividend that maybe shareholders expect now and is that,
you know, is that the right capital structure that sets
you up for success for this growth.
Speaker 2 (13:21):
So at our annual shareholders meeting, we talked about actually
increasing our dividend payout ratio. So you know, we're very
committed to those dividends. And I think the capital rays
we did last year was extraordinarily successful. In fact, I
think I'll get the stats wrong, but it had one
of the highest take ups for a rights issue structured
(13:42):
in that way ever in New Zealand. And you know,
fundamentally the reason that people I think backed us for
that is, you know, the projects that we brought forward
and if I take the jet tank or I take
the bitumen terminal facility, you know, largely the fee that
we earn on those are capacity based. So we're not
(14:03):
taking a significant newspect about development risk before we're not
taking a significant amount of operating risk associated with those assets.
The risk follows the parties that are best able to
manage that risk, which is generally our customers. And so
from our perspective, we're playing to our strengths, which is
management of a high hazard facility and long term infrastructure
(14:23):
and we're letting our customers and partners play to their strengths,
which is management of the product that they ultimately want
to get into New Zealand store and distribute to where
it needs to go. So I think from my perspective,
you know, I think shareholders are attracted to that type
of model, and I think as long as we stick
to that type of model, you know, I'm really confident
that we can raise the capital that we need to
(14:45):
fund these projects and.
Speaker 1 (14:47):
On those contracted revenues and contracts that you enter into
with the customers. With the move of shutting down the refinery,
you know, revenues less dependent on fuel volley, But what
does that do to the potential for upside? So it's
greater protecting the downside risk, but where is the upside
(15:08):
for equity returns?
Speaker 2 (15:11):
Yeah, So I think I think the way I look
at the business is we've got this core, defensive infrastructure
business with long term contracts with our customers, and that's
in a place where I think we're up to you know,
roughly fifty percent of our revenue last year or this
year is fixed, so not dependent on volume threeput, And
(15:31):
I think investors take a lot of comfort from that.
I think the upside comes from our ability to deliver
the growth projects, and so last year we committed to
fifty five to I think sixty five or sixty two
million of new growth projects that we're at attractive returns,
and that is the Bitchumen terminal and the tank that
we're talking about, and we've spoken this year about and
(15:54):
in this conversation about some of the other projects that
we've got growth projects that we're working on, like the
the capacity based diesel peak, like the Buyer refinery project,
where you know, we're able to in a really smart
way use our existing assets, use our existing land to
provide additional revenue and returns to shareholders. But the returns
(16:17):
and revenue associated with those deals are likely to be
the same contracted, capacity based type deals that you've seen
from us in the past, because we know that shareholders
like them. So that's that's one part of the upside.
I think the other for us is over the course
of the past eighteen months, you know, three of our
major shareholders sell down the three customers actually that we have,
(16:41):
which is a legacy they holding their head when we
were a refinery, and that to me speaks to their
discipline about recycling capital, and we see an opportunity for
us to help them recycle capital and other terminal assets
they might own in this part of the world as well.
Because we're not the only terminal in New Zealand. There's
a bun from others. There is one actually just downstream
(17:02):
from us. And so from my perspective, you know, we're
here saying we've got capital to invest. You know, we're
a good owner and manager of these assets. That's why
customer relationship piece is so important, and you know, we
can take a long term, long term view and allow
our customers to reinvest their capital elsewhere in their supply chain.
Speaker 1 (17:24):
Your background is that you've headed up M and A
for a large, a recent bank. Outside of maybe those
terminal assets, is there any other sorts of assets that
could be quite attractive, particularly because of maybe capabilities, expertise,
other sort of assets and experience that channel might have
that they could leverage.
Speaker 3 (17:44):
Yeah.
Speaker 2 (17:44):
One of the lessons that I've learned from doing twenty
years of M and A is you need to look
really long and hard at what your own capabilities are
as a business and ask yourself, you know, can you
actually manage what you're buying better than the person that's
selling it to you. And I think in relation to
terminals sets, you know, I think we've got we managed
(18:05):
New Zealand's largest terminal by a country mile. We've made
some really good operational improvements over the last couple of years.
Really proud of the way the team's delivered that, and
I think, you know, that's earned us the right to say, well,
we are really good owners and managers of those assets.
And so I think we're pretty disciplined about the types
of sets that we'll look at, actually, and I think
(18:27):
focused on those where we can add value as a
management team and as an operator and sticking sticking to
those now. It might be in the future that we
build additional capability and we say, hey, we've got a
capability that we can go and export, or you know,
there's an asset that comes with the team that has
a great capability. But I think for the business as
(18:48):
it stands today, that's really our focus.
Speaker 1 (18:50):
So it's really asking the question, are we the highest
value owner of this asset? It's right, I'm not just
trying to get a bargain for a sort of random
asset that might not be so strategically alone.
Speaker 2 (19:00):
You shouldn't and you can't do M and A for
M and a's sake. You do it because you see
it gives you a competitive advantages of business, helped solve
your customers problems in our case, and that most importantly,
we can add venue to shareholders and if it doesn't
tack those boxes, then we shouldn't be doing it.
Speaker 1 (19:19):
So you did mention that twenty years experience doing a
lot of different M and A deals. Was going into
an executive position always part of your plan? Or was
that more sort of an opportunity that came up.
Speaker 2 (19:31):
I think, if you want to be really real about it,
I don't think becoming an investment banker was ever part
of my plan. I went to university to study computer science,
took one finance course, and almost by accident, just kept going.
And when I finished university, most of the cool kids
were trying to get internships at banks and those types
(19:53):
of things. So I just did what everybody else did it.
So from my perspective, I found myself twenty years into
an investment banking career. I think one of the privileges
of that is that you work with companies in their
best moments and in the worst moments. You know, I
saw a lot of really good decisions and I saw
some not so good decisions, and you learn a lot
(20:15):
in that. I think personally, I'd achieved a lot in
that part of my career and I was kind of
ready to move on to the next thing. And actually,
you know the role well. The two roles that I've
had since I transitioned out of banking have both been
with really good clients. When I was working at Full
South bar and moved on to Manua, you know, they
(20:39):
were a client at the time, and I knew that
business really, really well, So I think that helps with
that familiarity. But yeah, look, I think I wouldn't say
it had always been part of the plan, but certainly
increasingly it was part of the plan. And I'm really
excited by what I'm doing now.
Speaker 1 (20:56):
You talked about seeing both good decisions and not so
good decisions. A key part I imagine of being a
CEO is that you really have to live through the consequences,
both good and bad, of those decisions. What has been
some of the biggest learnings you've had as you've made
that transition from advising to sort of you know, seeing
(21:18):
the consequences both good and bad, of any of the
decisions that are being made.
Speaker 2 (21:21):
Having a really good team around you is everything. And
having a team that aren't afraid to put their hand
up when they think you're making a bad decision or
we're not heading in the right direction. And so, you know,
what I really value about our team at Channel is
everybody is upfront and straight up about what they think,
(21:42):
and we have really good discussions about all the decisions
that we make. You know, that healthy culture of challenge
and debate leads you to making really good decisions. And
so for me, being surrounded by soper smart people who
are passionate about what we're doing, passionate about the mission,
want the best for the company, and each bring different
(22:03):
perspectives to a decision, whether it's operational, financial, strategic, commercial risk,
and each bring that lens from my perspective. I think
that's how we make good decisions as a company.
Speaker 1 (22:17):
And as you say, when you do have those diverse opinions,
it's almost impossible to get consensus straight away.
Speaker 2 (22:23):
I almost worry if everybody agrees with something because it
makes me wonder, have we really tested this right? And
so Yeah, that's why really diverse team of talented people
is such an important part of a high performing business.
And people that are unafraid to provide their opinions, good
fact based discussion and you know, ultimately contribute to the
(22:47):
success success of the company.
Speaker 1 (22:50):
So in terms of that success of Channel Infrastructure, if
we fast forward five years or maybe even ten years
and things have turned out really well, what is Channel Infrastructure.
Speaker 2 (23:00):
Well, we've got a really awesome opportunity to be transformational
for Northland and New Zealand. As I said, so the
development of the Energy Precinct, you know, I think you've
seen the numbers. You know, during the build phase that
could be twenty thousand.
Speaker 1 (23:15):
Jobs, just a massive for fifteen years.
Speaker 2 (23:17):
Over fifteen years, you know, it could be over eleven
hundred jobs on an ongoing basis, a significant contributed to GDP.
You know, depending on the projects that we can bring
to be, you know, we will be really additive to
New Zealand energy and fuel security because that's what the
Energy Precinct is designed to do. And you know, I
(23:38):
think if we did that, you know, for Northland and
New Zealand, that would be epic, That would be just
such a such a great outcome and where you know,
the energy Precinct is a long term plan and there
will be ups and downs on projects that happen and don't,
but I think we all see the potential there and
the awesome economic potential for Northland and the awesome you know,
(24:01):
opportunity for that energy and fuel security piece.
Speaker 3 (24:05):
You know.
Speaker 2 (24:05):
The other comment I would make is that my hope,
certainly within fifteen years, is that we aren't just based
at marson Point or don't just have as sets at
Marston Point to Auckland. That we're a bigger company than that.
We've got a bigger footprint.
Speaker 1 (24:18):
Their precinct is a real long term investment. Some of
the numbers are you know, I've got big scale. I
think PETWC estimated about two point three billion dollar contribution
to the to the GDP. That that might make you know,
things around us are changing all the time, and it
feels if anything like the rate of change is getting faster,
(24:40):
not slower. How do you think about building a long
term strategy, and particularly one where it does require significant
capex upfront when things change so much?
Speaker 2 (24:52):
Yeah, well, firstly that's why partners are really important. I
think we need to be really humble in New Zealand,
that we won't have all the right ideas and the solutions.
And there's a whole bunch of really big companies and
some small companies out there in the world doing some
really interesting things in this space, and we need to
bring their expertise in capital as relevant. So, you know,
I think that's part of how we de risk this
(25:14):
for Channel and our investors. So from my perspective, partners
are key to that. I think being willing to be
patient and pivot as well. So said, this won't be
a linear journey. And you know, probably two years ago,
did I think that you know, we would have need
(25:36):
for a diesel peaker or on the site or that
might be something that New Zealand would need. And so
I think you've always got to be scanning on the horizon.
Where are the opportunities, How can we contribute as a company,
What is our unique competitive advantage that we can bring
to something, and who can we partner with to help
(25:59):
make it happen. And you know, if it happens that great,
that's great. And if it doesn't, then you know, maybe
it sits there for five years and it happens in
five years, or maybe it pivots to something else. I
mean if you think about, you know, the Buyer refinery project,
that's the ultimate pivot because we're turning what was some
old refining kit into something that is new and you
(26:21):
could make a really significant economic contribution to New Zealand.
Speaker 1 (26:25):
If you were an investor thinking about channel infrastructure as
an investment, what would be the metrics that you would
be looking at. We talked about dividend, so divin yield
is one, but what are some of those other metrics
that you would think about tracking over time to assess
whether channel of structure is being well run and doing well.
Speaker 2 (26:44):
So the measure that I would look at so this
dividend and free cash flow? Right, and the reason that
free cash flow is so important and actually you look
at it across any business you invest in, not just channel.
You know, that is a true measure for the cash
that the business is reducing. And so you know ebit
DA can have you know, when people talk about revenue
(27:05):
and ebit DAR, you know there's pros and cons with
those measures, but free cash flow is the yearnings less,
the sustainable capex, less your interest costs, so you know
it's a true measure of the cash that the business
is producing, and I think scheerholders should look at that.
I wouldn't want to give anybody any financial advice, but
(27:26):
I'd I certainly look at it at any investment that
I look at, not just not just channel. And that's
a metric that we are focused on as a company
because you know, we need to balance you know, the
long term nature of our business and making sure that
we make good, disciplined investments in our assets to ensure
that they're there for a very long period of time,
(27:47):
so that that's covered in the KPEX part of it.
And then there's the yearnings part of it, or the
cash that the business generates as well, which is a
reflection of the enterprise or the job that we do well.
Speaker 1 (27:59):
I think we're I'm here, but thank you so much
for what has been a really interesting conversation.
Speaker 2 (28:04):
Thank you, suys, really appreciate it.
Speaker 1 (28:06):
Thanks for tuning in. Everyone. You can get Shared Lunch
on YouTube or wherever you get your podcasts. Leave us
a rating and let us know what you'd like to
hear about next. Have a good wish of your week.
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