Refiners Pre-Earnings Situation Report

by: James Shell

We have not checked in on this group for awhile, earnings season is upon us, and it is time to see what is going on.

We know that the earnings in this group are driven by general conditions in the economy, and while still quite weak historically both crack spreads and refinery utilization were improved vs. 2009 in the third quarter:

Crack Spreads: The 60/40 crack spread vs. WTI averaged about $8.75 for the third quarter, vs. $8.25 per barrel last year and that is reflected in some of the earnings estimates which are uniformly higher than they were a year ago. Currently the 60/40 WTI crack spread is just under $10

Refinery Inputs:The refiners input an average of 15.14 mbpd (88.9% utilization) in the third quarter this year vs. 14.74 (85.5% utilization) last year for the same period. Last week, inputs were around 13.9 mbpd down 1% from a year ago, so demand is still quite weak, particularly for unleaded which is off 1.1% vs. a year ago...

Here is a brief summary of the news from this group in the last few weeks: The stock prices are as of October 14, and the earnings estimates are via Yahoo Business.

Western Refining (NYSE:WNR): (Stock Price $6.87/Earnings Est. $0 .08 per share): This stock has been one of the big movers over the last couple of days due to an upgrade by Morgan Stanley...The viewers of my previous instablogs on this well know that they pulled the plug on their ill-conceived poorly timed malinvestment in the refinery in Virginia, shrinking the company back down to its formerly reasonably profitable size. The problem is, that they still have the debt on their books, which they will try to restructure during the next few months, and it will be interesting to see how they accomplish this.....

Tesoro (NYSE:TSO): ($14.25/$0.38) They've announced the reopening of their Anacortes refinery, which has been closed for 9 months due to a fatal refinery explosion and fire, the startup is scheduled for the end of October.

Valero (NYSE:VLO) ($18.10/$0.51) With their extensive exposure in the ethanol business, they have an opportunity to take advantage of the new regulations allowing an increase in ethanol usage to 15% from the current 10%.... if, and it's a big if, commodity prices do not go crazy because of all of the rest of the issues going on in the economy.

Marathon Oil (NYSE:MRO) ($35.28/$0.92) MRO recently announced the sale of a refinery in St. Paul along with 100 Super America gas stations in Minnesota, for $900M. If you had $900M right now, and you were conservative MRO, what would you do with it? Retire debt? Make an acquisition? Stock buyback? Maybe they will give us a clue in their earnings announcement....

Calumet (NASDAQ:CLMT) ($21.13/$0.45) The readers of my article in June that bought this stock at 17 are delighted right about now, even more so because of the fact that they have increased their dividend for the upcoming quarter....

Holly Corp (HOC) ($33.20/$0.82) No real news this quarter. Is that good news?

Frontier Oil (NYSE:FTO) ($13,77/$0.09) Refinery reliability was the achilles heel for these guys, they had some SRU issues in September due to a thunderstorm that supposedly did not impact their rates.

Suncor (NYSE:SU) ($34.39/ $0.43) Every day, when they come in and turn on the lights in the office, and the WTI price is above 65, these guys have reason to smile. At 264,000 bpd, every $1 increase in the WTI price sends an additional $0.015 per share directly to the bottom line. What do you think crude oil is going to do in the next three months?

As usual, the world is chaotic, and there are no guarantees on anything, but there are a couple of interesting stories in this little group of companies that we will have to follow....

Disclosure: None