smh.com.au

CALTEX has boosted its profit expectations by as much as 21 per cent for the full year due to higher oil refinery margins but has suffered a further cost blowout in the upgrade of its refineries to meet cleaner fuel standards.

The country's largest oil refiner yesterday raised for the third time the expected cost of the upgrade of its Sydney and Brisbane refineries from $420 million in August to as much as $495 million.

Caltex said that on its preferred "replacement cost of sales" measure, profit after tax was expected to rise from $348 million last year to between $390 million and $420 million for the year to December 31.

The managing director, Dave Reeves, said the forecast profit had been boosted by "significantly higher" margins from its refineries in the second half.

Those margins were increased thanks to production shortages in the United States after Hurricane Katrina damaged oil refineries in August and strong fuel demand from China and India.

Hurricane Katrina "was a very significant shock to the system", reducing refining capacity by 2 million barrels a day, more than twice as much as Australia produces every day.

Caltex's rise in estimated earnings drew strong criticism from consumer and motoring groups.

The NRMA's motoring and services president, Alan Evans, said Caltex had exploited the opportunity to increase refinery margins after Hurricane Katrina.

But Mr Reeves denied his company was benefiting at the expense of motorists. Petrol prices were set by the market, not individual companies, he said.

Prices have fallen from about $1.40 a litre at Sydney service stations in September to an average of $1.13 yesterday, according to the NRMA's website.

"We often hear about the prices when they are going up but sometimes people don't comment when they come down," Mr Reeves said.

Caltex's refining margins have risen from an average of $US7.28 a barrel in the first half to more than $US11 in the four months to October 31. They averaged $US2.57 a barrel between 1999 and 2003, a level Mr Reeves said was the break-even point for oil companies.

The higher earnings estimates had been achieved despite shutdowns for maintenance and upgrades to meet cleaner fuel regulations in the first half, he said. In July, the Kurnell refinery was shut down for a week after a power blackout.

Caltex is rushing to upgrade the Sydney and Brisbane refineries so they meet the new cleaner fuel standards from January 1.

Mr Reeves said the upgrade was unlikely to be completed until the first quarter of next year because of a tight labour market and delays in getting equipment and materials.

Caltex originally estimated that the upgrades would cost $295 million but raised the figure in April and in August.

Yesterday it estimated the work would cost as much as $495 million.

Macquarie Equities analyst Andrew Blakely said Caltex's profit estimates exceeded his forecasts. He expected the company to sustain stronger margins in the near term. The broker has a neutral recommendation on the stock.

Mr Blakely said the higher upgrade costs indicated the company was pushing aggressively to get the work done.

Shares in Caltex rose as much as 55c to $21.75 in early trading, closing up 14c at $21.34.