Frontier Oil Corp. Q4 2007 Earnings Call Transcript

Frontier Oil Corporation (FTO)

Q4 FY07 Earnings Call

February 26, 2008, 11:00 AM ET

Executives

Doug Aron - VP, Corporate Finance

James R. Gibbs - President and CEO

Paul Eisman - EVP, Refining and Marketing Operations

Nancy Zupan - VP - Controller

Analysts

Arjun Murti - Goldman Sachs

Chi Chow - Tristone Capital

Jeff Dietert - Simmons

Daniel Burke - Johnson Rice

Jacques Rousseau - Back Bay Research

Kenneth Pounds - Nutmeg Securities

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Fourth Quarter 2007 Earnings Conference Call hosted by Frontier Oil Corporation. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct the question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference call, Vice President of Corporate Finance, Mr. Doug Aron. Please go ahead.

Doug Aron - Vice President, Corporate Finance

Thank you, Audra. Good morning, and thanks to all of you for joining us this morning. Before we get started, we'd like to read our Safe Harbor statement.

The primary purpose of this conference call is to describe the assets, operations and certain current and historical financial conditions associated with Frontier Oil Corporation. This information and associated comments made during the course of this conference call may include forward-looking statements concerning the Company. These may include statements of plans and objectives for future operations, statements of future economic performance or assumptions or estimates.

The accuracy of these forward-looking statements is subject to a wide range of business risks and changes in circumstances that are described in the Company's reports that are filed from time-to-time with the Securities and Exchange Commission. Actual results and outcomes often differ from expectations.

I'd now like to turn the call over to our Chairman, President and CEO, Jim Gibbs.

James R. Gibbs - President and Chief Executive Officer

Thank you very much for attending our quarterly conference call. I hope that you stand by during the entire session. We did report earnings for the quarter of $43.4 million and that's $0.41 a share and that was down from last year.

To say that we are very happy about these earnings would be telling you that is... something that's not true, I am very distressed by them, I'm not too happy about them, the market gave us an opportunity to, at least, do as well as we did last year and we did not do it. So, it was a matter of essentially performance: our performance.

The big event during the quarter was a fire at our coker in Cheyenne, Wyoming that is not... was not a result of machinery that was a result of supervisor and operator deficiencies. Some of which have been cured, the operators and the supervisors, that is. That cost us about $9 million... about $10 million. And that's opportunity cost lost as well as actual maintenance cost incurred. Clearly it would have better if the market had been better... pardon me; it would have been larger, if the market didn't better. I guess the good news and bad news about the market is that that really got weak during the month of December. October was okay. November started getting weak about the middle of the month and by the end of December it was very weak in gasoline.

We have then, and we still have a bifurcated market. Gasoline has been weak, and contrary wise our diesel market has been quite good.

Just to give you an idea, the gas cracks for the quarter were $3.27 that's $4.69 lower than we had at the same time in 2006. While our diesel crack was $16.06 on average and that's $4.15 lower than we had in 2006. We are not complaining about the Diesel market; $16 this time of year is quite high and it continues to be high. It's just it was lower than it was in 2006.

On the other hand, the opportunity was in the area of differentials, the sweet/sour or the WTI did... WTS spread was $6.95 and that was $2.11 better than it was in 2006, a lot heavy spread. Average between the two plants $29.50 and that's up $14.33. So, if we could have just run the plants, we would have made a lot more money.

Back to cracks, just a second; very unusual... we always have cyclicality there... seasonality there in the Eastern slope of the Rockies but not to this extent. Our December crack spread in Cheyenne was $3 negative, on average. We had 27 days during the month when the crack spread in Cheyenne was negative. Most of that was almost... all of that was on December [ph]. El Dorado was quite a bit stronger. We only had one day when we had net negative crack, but then also the December diesel cracks were good at both plants.

So, we had a combination of a fire, reinforced by very weak market for gasoline in Cheyenne that cost us about $10 million. So if you... if we hadn't had the fire, we reported about $44 million worth of second quarter earnings; about $0.41. But we did have that fire, and so we didn't produce. As a matter of fact, before netting out for a FIFO and hedging, we would have reported about $54 million worth of earnings, or $0.50 a share which is better than we would have had... better than we did have during 2006. I am going to repeat that one more time. If we hadn't had the fire, we reported... would have reported about $53.4 million, $0.50 a share, which is higher than we would have had in 2006. That's pre-FIFO and pre-hedging losses.

So, just let me backtrack and get everybody on sort of apples-to-apples basis. Third quarter reported earnings, $43.4 million; FIFO gain, $40.8 million. Hedging loss attributable, which is to offset the FIFO gain or loss was a $31.5 million loss. Net all that out on a FIFO basis, our best guess is that our earnings is about we're about $34 million, $0.32 a share. Add back the Cheyenne coker fire of about $10 million, our results would have been $43.8 million; EPS of $0.41 was essentially the same thing that we reported. So, there we are in a nutshell.

We did have a spectacular year though. We had revenues of almost 50... $5.2 billion, pretty extraordinary for a small company. Even more extraordinary is the fact that we had operating income before depreciation, better known as EBITDA, of about $809 million, and net income of almost $500 million. And sort of a super cash here, we had cash flow before working capital changes of about $566 million, net cash before operating activities of $429 million, investing activities took about $280 million; so, we have free cash almost $150 million.

And what we do with all that case Doug?

Doug Aron - Vice President, Corporate Finance

We bought back shares.

James R. Gibbs - President and Chief Executive Officer

How many shares did we buyback?

Doug Aron - Vice President, Corporate Finance

We bought back... so far including the two months of '08, and if you include '07 it's totaled 7.9 million shares, and by the end of this week we will be at about 8 million shares, which for the year is about 7% of our outstanding, beginning of the year, capital stock.

James R. Gibbs - President and Chief Executive Officer

I just had one follow out which are crude and oil [ph] prices is much higher level of inventories in receivables, it sucked out about $174 million worth of cash. During the beginning of the year and the year we invested about $174 million in inventories and receivables with almost all of that was a result of higher prices.

So, what does it look like for first quarter this year? We have a very large turnaround scheduled beginning on March the 1st of this year. It's going to last for 38 days, and it is going to be in El Dorado, Oregon, Thailand [ph] a brand new vacuum unit and our revamp... rubber [ph] revamp work on our crude unit. So, we will not be running any crude for about 38 days that doesn't mean that we are not going to produce product, because we will. We have very large inventories and intermediaries [ph] which we particularly plan on running and selling.

But at the end of that 38 days, we should have a brand new vacuum tower and expanded crude unit, and run at least 120,000 barrels of product... pardon me, of crude.

I think that that's a very conservative number. Everybody anticipated more than 120,000 barrels due to a capacity once we get this brand new vacuum tower online and also debug. But we're not going to have a lot of crude to run or any crude run during the month, as when we come up, we will be able to expand very dramatically and El Dorado plans to run more crude in 2008 than we ran in 2007, even though we are not going to run any crude for 38 days. So we have high expectations of... at El Dorado as a result of this plant turnaround in a new vacuum unit. It will solve not only a lot of problems with the tower work itself, but we are also going to eliminate a lot of recurring maintenance difficulties with several of the subunits, most notably the eaters in that crude units, so our reliability should be up, capacity should be up; we have great expectations.

The current market environment is a little bit better than we had in December. Our crack spreads are quite a bit better. Our diesel spreads are quite good. So, even though we're going to be down for 38 days in El Dorado, as far as a crude unit we anticipate a relatively decent first quarter. If we were able to run 120,000 barrels of crude oil that would be quite better. But thus far in February our gasoline crack has averaged about $4.60 on Cheyenne and didn't Cheyenne, but it's like a yo-yo, it goes up and down, sideways, it's not very stable to get hold. The crack in El Dorado is quite a better it's average about $7.80 but is again very stable for the entire month.

And then diesel, that's the crown jewel this year that as well as in the last half of last year. It's averaging about $20 a barrel at both plants.

So a mix bag. We are optimistic that our crude rate is going to look a whole lot better, and the second quarter then the first we will ramp up a lot of crude oil and I think we are going to be in pretty good shape. Differentials are strong; we took advantage of that to the extent that we could in the fourth quarter of last year, having both plants run absolutely maximum crude. We ran essentially every barrel of heavy crude that we could get our hands on. And I think we are going to probably doing the same thing for quite some time.

Currently, a lot of heavy differential, Cheyenne run about $24 on average. The sweet/sour spreads running about $5.22 a spud, the base is a little bit higher in there. The sweet... Wyoming sweet to WTI is running right around $6 a barrel. So, differentials, I think, will be the name of the game for at least first four, five months of this year and then we have to see what's going to take place with the gasoline market.

It's not unusual, in this area, to have surpluses of some gasoline during December, January and February. So, I guess, we got spoiled by the last two or three years. When things brought were still short and the cracks on gasoline were higher than they would tend to have been on a secular basis. So depending upon what happens with gasoline, we would tend to save it. We are going to have a lot of throughput and lot of product to sale, but we don't have a clue on what the pricing is going to look like.

I think with that, Audra, we are more than willing to answer what questions we can.

Question And Answer

Operator

Thank you. [Operator Instructions] We will go first to Arjun Murti at Goldman Sachs.

Arjun Murti - Goldman Sachs

Thank you. Just wondered if you got a updated capital spending number for '08 and maybe order of magnitude for '09? Thank you.

Unidentified Company Representative

Arjun, the '08 number looks like about $315 million, '09 is probably around two-thirds of that, so that's a lot less cash to the stone. Of the $315 million, we are spending a lot of money completing the big projects in El Dorado that being the crude vacuum expansion, the coker expansion as well as two that are coming to be put online in 2009. Those being the Gasoil hydrotreater and the cat cracker expansion. In addition, at both plants we are spending considerable money during 2008 on facility sighting, effectively where we put our employees and in what types of operator shelters. The purpose of this is, obviously, safety, but it's a big focus in front of you right now that being process safety management and a sub component of that being these facilities. So, that's the big piece of the many of those projects that I just discussed for '08, in addition to typical, reliability and safety projects.

Arjun Murti - Goldman Sachs

Terrific, and it sounds like you are intending to continuing to buyback stock with your free cash flow as well?

Unidentified Company Representative

Absolutely.

Arjun Murti - Goldman Sachs

That's great. Thank you very much.

James R. Gibbs - President and Chief Executive Officer

You're welcome.

Operator

And next we'll move to Chi Chow at Tristone Capital.

Chi Chow - Tristone Capital

Good morning.

James R. Gibbs - President and Chief Executive Officer

Good morning to you.

Chi Chow - Tristone Capital

Hey, Jim, could you go over your list of projects, again, I know you've got the vacuum unit coming along, but can you go over the timing and cost estimates for each of the project?

James R. Gibbs - President and Chief Executive Officer

Yes...

Unidentified Company Representative

...the timing for the crude back is to be brought on in the March turnaround. It costs us about $152 million, and we feel like that's spot on, that's actually down from an earlier estimate of 156, so we are very comfortable with that project, it's being very well managed by the operations team. The coker expansion in El Dorado is in $60 million that's to be brought on a mid June timeframe 2008. It would be effective about 3,000 a day of additional coking capacity... go for charge capacity. The gasoline high-feeder and the cat cracker are both slated for 2009 in the fall and the respective cost of those projects are $88 million and $80 million. Accepted to that Chi [ph].

Chi Chow - Tristone Capital

Yes, so the coke runner [ph] and crack cracker that's been pushed back a little bit on the timing in '09?

Unidentified Company Representative

Yes, it was from initial scoping which was spring turnaround '09, but we've had that on the schedule for falling for about 6 to 8 months.

James R. Gibbs - President and Chief Executive Officer

Yes. It was turnaround really more than the capital project related.

Chi Chow - Tristone Capital

Okay, got it.

James R. Gibbs - President and Chief Executive Officer

But it also gives us time, those fellows working these projects, a little bit more time, probably a bit more time, which at the margin has got a very high return on it, because of you don't flee some and if you don't stay after long, if you don't keep up, if you try to push them to hard, you're going to run into some extraordinary engineering order of change charges, and that's where you need yourself alive on these projects...

Chi Chow - Tristone Capital

Okay, what about the sat gas plant at Cheyenne...?

James R. Gibbs - President and Chief Executive Officer

We don't have a honest to god plan on that, Chi. We are going to do it, but we don't know right now the best way to do it cheaply. So, we don't want to spend a zillion dollars on this, when we have a couple of alternatives. And we haven't actually been able to flush those out what we're going to do or what the final cost will be.

Unidentified Company Representative

So a little bit dependent on what we do more broadly with the Cheyenne plant and what sort of sat gas processing needs we have and so we're working a larger integrated plan right now. Our Denver guys are putting that together looking forward five and ten years. So that will determine a lot about what that project ultimately looks like.

James R. Gibbs - President and Chief Executive Officer

We are going to try and present that to our board and [Audio Gap] 10, 11, 12, so, we got time... they get this flushed out to sea, where we want those capacity [ph] look like about 2015.

Chi Chow - Tristone Capital

Okay, got it. And then I have a second question on crude differential. I think on the last call you mentioned you are picking up a January Canadian contractor a 50 bucks of WGI, I am seeing like the void difference that's been really pulled in, since the beginning of the year. Can you give us an idea of what volumes have locked in at set differentials versus any spot purchases?

James R. Gibbs - President and Chief Executive Officer

I actually don't know, do you know what those are Paul?

Paul Eisman - Executive Vice President, Refining and Marketing Operations

Yes, I don't have those volumes. Obviously, we try to purchase as much as we could, given the logistical constraints to get those down to the plants, because we... what you don't want to do is end up with that... those barrels stranded somewhere so we, we work around our logistical [ph] constraints but we did maximize purchases put whatever we could into storage and we are continuing to work those barrels through the system.

James R. Gibbs - President and Chief Executive Officer

... what we can do is try to get that deal on what that average how much of that was locked in and before our average price was but then on our web site and call you on to give you some more information.

Chi Chow - Tristone Capital

Great, that will be great. Thanks a lot.

James R. Gibbs - President and Chief Executive Officer

You are welcome.

Operator

We'll go next Jeff Dietert at Simmons.

Jeff Dietert - Simmons

Good morning.

James R. Gibbs - President and Chief Executive Officer

Good morning.

Jeff Dietert - Simmons

Just following upon Keith's question, it looks like you have been very successful holding your capital expenditures on these major projects, are you seeing cost stabilize or you are continuing to see inflation, that you have protected yourself from it?

James R. Gibbs - President and Chief Executive Officer

We see inflation, but the second derivative is definitely negative, so it's slowing down a little bit, but there is all kind of opportunity to make a fool out of yourself on these projects. We are very fortunate that we have some incredible talent in El Dorado to be able to go through all the detail and everybody's feet to the fire and get it at the lowest possible cost we can. So, you are right. We have... I mean other people have done it. It's not because of me, it's because of gas, we are out there doing these projects. And we have some extraordinary talent, and we are quite proud of them.

Jeff Dietert - Simmons

And you mentioned on the Gasoil hydrotreater and the SEC that that had moved from spring to fall, could you give us a little bit more information was that a change in maintenance scheduling or what contributed to that change?

Paul Eisman - Executive Vice President, Refining and Marketing Operations

Yes, this is Paul Eisman. There were two things that contributed a change, one was, as you mentioned, looking at the development of these projects, we didn't want to accelerate these to a point we were uncomfortable, we felt like we suffer increased cost if we could manage the projects in a rational way. Secondly, we looked at our economics, the way we run the plants. And historically, at El Dorado, we have had a big incentive to take turnaround in the spring, because we would save Gasoil... I am talking about the cap turnaround, say Gasoil run that through the summer but now with the new crude and backing unit our economics have changed and that's not a big driver as it has been in the past because we will have additional capability to produce more Gasoil through the summer. So, as you might know we had a more cat capacity than we had crude capacity to fill that up. But with the new crude backing unit that will change. So, the economics pushes back to a fall turnaround rather than spring turnaround in 2009.

James R. Gibbs - President and Chief Executive Officer

And always has...

Jeff Dietert - Simmons

That's helpful, thanks Paul.

Operator

[Operator Instructions] We'll go next to Daniel Burke at Johnson Rice.

Daniel Burke - Johnson Rice

Good morning all.

James R. Gibbs - President and Chief Executive Officer

Good morning. How are you doing, Daniel?

Daniel Burke - Johnson Rice

I'm fine. Paul, wanted to ask you a question about the cost at Cheyenne. Even assigning some of that or most of that $10 million in fire related cost. It looks like Cheyenne's op cost was up a little bit verses the historical run rate, anything else to look at in that number in the fourth quarter and any thoughts on what that operating cost line looks heading into 2008?

Paul Eisman - Executive Vice President, Refining and Marketing Operations

Yes, clearly we had some unusual items in the fourth quarter. I've kind of, we spend a lot of time on this, it's a big issue to us and so we think we have a pretty good understanding of what the cost were in the fourth quarter. We had... first of all we had several unplanned events. We had the coker fire, and in the fourth quarter that was about $4 million of expense pretax. We did... we anticipate we've got some additional environmental expenses so we increased an accrual for environmental compliance and remediation by about $3 million.

We had some other one-time issues of about $1 million, $1.5 million, so if you add all that up, we had non-recurring costs in the fourth quarter of about $8.7 million. Now, we have increased turnaround amortization cost and that will continue going forward next year of about $1 million a quarter, that relates to... and I will talk to a little bit about what we are seeing in terms of the inflation related to turnaround resources, that's people and materials related to turnarounds, but a lot of that was just the fact that we just went through a turnaround cycle at Cheyenne and those were the increased cost that we saw in the turnaround cycle versus what we we're amortizing prior to the turnaround.

Lastly, I will mention we spend about a $1 million in proactive expenses trying to increase the reliability of the plant, things such as winterization. We obviously want to improve the reliability of the Cheyenne plant, so we spent about a $1 million there.

If you look at our inflation on a year-to-year basis, I think Jim's right, I think we are seeing the second derivative decrease... the cost may increase, the rate of increase of cost is decreasing. But year-over-year we are still a 10% increase in cost and fourth quarter expenses in Cheyenne last year were about $26 million, so you could say, if you have a 10% increase in inflation year-over-year that that could have contributed about $2.5 million to our increased cost.

Going forward we do anticipate that... this is a focus for us, we are spending a lot of time on it, our budget for Cheyenne in 2008 is actually $7 million below our actuals in 2007, and so we are working hard... we anticipate our... we anticipate that we will make that budget.

Daniel Burke - Johnson Rice

Okay, great. Thank you for the detail. By 7 million under... just to calibrate... is that 7 million under; is it 109?

James R. Gibbs - President and Chief Executive Officer

I talking about Cheyenne.

Daniel Burke - Johnson Rice

Okay. Okay, you have the full year number for 2007 just so I can make sure we are on the same page with that comment?

James R. Gibbs - President and Chief Executive Officer

For 2007?

Daniel Burke - Johnson Rice

Yes.

James R. Gibbs - President and Chief Executive Officer

Just a second.

Daniel Burke - Johnson Rice

And then, I guess, while you're looking... the other question I had, more from a market perspective was, I was curious if you'll add any thoughts on why it looks as at least as though the Canadian heavy differentials have been tightening at a time when Gulf Coast recedes and heavy crude... the differential there have been widening a bit. Any market dynamics you could see around the cushion market that help explain what's going on there?

Paul Eisman - Executive Vice President, Refining and Marketing Operations

Well what we have seen in the first quarter so far this year, there was extremely cold temperatures up in Alberta, and as a result, I think, that contributed to some operating problems and tightened up the heavy market. And so I think that was a big contributor to what we saw, what we are seeing in the first quarter. We look at reserve prices and compare those to these differentials and our asphalt price in the first quarter has been, frankly, pretty weak. We are seeing some things that are significantly positive in terms of that regard, I mean we... first of all, prices have gone up effective essentially March 1st. We are seeing wholesale levels of asphalt at 250 a ton, retail at 350 ton, which is significantly better than we got at late fourth quarter, early first quarter. So, we are seeing price increases, but on the other hand what we are seeing is weakness in demand.

So, we are going to have to see how all that plays out. And then one other specific thing that's affecting us in the Rockies, is we are seeing two big new cokers coming online, sometime between now and the end of the second quarter. So, we expect asphalt prices to strengthen, frankly they need to strengthen to be able to support the differentials at these levels. You assume that the incremental barrel, the marginal barrel heavy crude oil producing ethanol And the maximum price is in you know $150, $200 a ton range, with $100 of crude you can do the math and it just doesn't make sense. So something has to break, either differentials have to widen or asphalt prices have to increase or maybe little bit of both.

Daniel Burke - Johnson Rice

Great, I really appreciate the answers, any progress on that that OpEx baseline.

Nancy Zupan - Vice President - Controller

Tom, this is Nancy Zupan, the total operating expenses for '07 on natural basis, excluding depreciation, were $109 million for Cheyenne and the 2008 budget, excluding depreciation, is a $102 million.

Daniel Burke - Johnson Rice

Okay, great. Thanks a lot for the color.

Nancy Zupan - Vice President - Controller

Sure.

Operator

We will move next to Jacques Rousseau at Back Bay Research.

Jacques Rousseau - Back Bay Research

Good morning.

James R. Gibbs - President and Chief Executive Officer

Good morning.

Jacques Rousseau - Back Bay Research

I was wondering if you could just give some color like you typically in terms of the margins you see in this quarter and also your volume forecast for the first quarter?

James R. Gibbs - President and Chief Executive Officer

Paul,you want to do volumes first?

Paul Eisman - Executive Vice President, Refining and Marketing Operations

Yes, the volumes, as was mentioned, we were in turnaround at El Dorado during March of this year and so we will run no crude in March at El Dorado. Our total charge between the two refineries in the first quarter is estimated about 125,000 barrels per day. Now, that will increase significantly, I just want to, kind of... because I do want to mention that because when we put on this new crude backing unit, we will be able to increase our capacity. Our second quarter throughput is expected to increase from that 125 to 178 and in the third quarter, its almost 189,000 barrels per day, total charge through the system.

Jacques Rousseau - Back Bay Research

What would be the break up between the two refineries for the 125?

Paul Eisman - Executive Vice President, Refining and Marketing Operations

Do you want in the first quarter?

Jacques Rousseau - Back Bay Research

Sure.

Paul Eisman - Executive Vice President, Refining and Marketing Operations

Okay. In the first quarter we... El Dorado should be at 80,000 barrels per day, Cheyenne about 45,500, and I will compare that to the third quarter. We expect El Dorado total charge to be a 139, 000 barrels per day and Cheyenne to be almost 50,000 barrels per day.

Doug Aron - Vice President, Corporate Finance

As for the margin question Jacques, for January, as Jim mentioned in his opening remarks, the gasoline there we saw a continuation of the weakness from December. So, we finished the month, our monthly average in January at Cheyenne at $1.88, in El Dorado it was $5.17 those are both gasoline numbers for diesel. Again, strength there was 15.12 for the month of January and Cheyenne 14.98 in El Dorado. Looking to February so far, as again Jim mentioned, we have averaged about $4.50 for gasoline in Cheyenne, about $7 in El Dorado and about $20 at each plant on diesel.

Jacques Rousseau - Back Bay Research

Great.... One last one, what will be a good tax rate to use for '08 and '09.

James R. Gibbs - President and Chief Executive Officer

Zero would be a good one...

Unidentified Company Representative

Maybe if the items that affect our tax rate go like this, the Federal rate 35%, state and local adds 2%, and the effect of the 199 deduction in 08/09 feels like it will reduce that by 3%. So you net the numbers you get to about 34% for an effective tax rate.

Jacques Rousseau - Back Bay Research

Thank you very much.

James R. Gibbs - President and Chief Executive Officer

Well, going back on cracks and [indiscernible]. I don't know about the January, but so far in February, we look at the 6, 3, 2, 1 crack spread you sort of refiners [ph] that numbers in. El Dorado 3, 2, 1, so it gives you a real gross estimate of your margin is relative to your products and your byproducts and relating to crude. And the number at Cheyenne is about $23.50 and the 3, 2, 1 at El Dorado is about $21.42. So, if we can't make money on those, you'll get a new management.

Operator

[Operator Instructions]

Unidentified Company Representative

Sorry, I am right here...

Operator

[Operator Instructions] We will go next to Kenneth Pounds at Nutmeg Securities.

Kenneth Pounds - Nutmeg Securities

Hi... I am also little curious about the negative cracks in December, what do you think, really, was the basis for that, was there some influence from just the real problems they were having on the West Coast or what would you say?

James R. Gibbs - President and Chief Executive Officer

I am going to give you two reasons and Paul may have another one. One, Denver has probably had its worst winter in 25 years. I don't know about the temperature, but just the amount of snow they are having. So, driving was, really, cut down, you can recover that. Once you don't drive in a day you can't, you are never going to recover that day. Two, you got lot of product going in Denver that can't get out, once its there, all the pipes go one way. So, folks are going to continue to run product up there, and will maintain their capacity in the spring and summer when the margins get hold out there. They don't mind losing money for time being, just in order to maintain the capacity on a prorated decline. Do you any other reasons, Paul?

Paul Eisman - Executive Vice President, Refining and Marketing Operations

Yes, I think the other reason I've mentioned is the basis for the calculation of the negative $3 crack, I mean, that's based on WTI, sort of, number which is the traditional way of doing it, and that's the way we look at it, and that's the way we looked at it historically. Now you would assume that with the negative $3 crack, people would cut back. There is a couple of issues that why they don't. Number one is, you still have pretty good diesel crack and so you know that's support running of additional crude. Secondly, there is a crude differential, so when we talk about a negative differential versus WTI, and we've got a crude differentials that's off of that, we still haven't sent to run it on a gasoline even [indiscernible], it doesn't mean that that doesn't impact our bottom-line on a comparative basis year-to-year because you have to take the whole impact of both the cracks and the differentials into account when you calculate that number. But in the Rockies with overall low crude price compared to a WTI or a Gulf Coast barrel, you still have a sense to run barrels in this market.

James R. Gibbs - President and Chief Executive Officer

That's right nobody in our market runs WTI unless they have to, and the Wyoming sweet is running about $6 under WTI. So, the crack spreads we give you only have meaning as basis comparison where they are in the rest of the country. The crack spread is posited, in some cases highly deposited depending upon what crude that you are running in your slates.

Kenneth Pounds - Nutmeg Securities

Right, and I guess finally you mentioned that heavy crude charge was 59,000 to 642 for the fourth quarter is that something that can be maintained or improved upon for '08?

James R. Gibbs - President and Chief Executive Officer

Can be improved upon.

Kenneth Pounds - Nutmeg Securities

Do you have any guidance on that?

James R. Gibbs - President and Chief Executive Officer

It should be able... I can give you some color on it. Color on the coker, 104 times [ph], 95% to 96% of capacity, and we are going to have a great big vacuum tower that's going to suck a lot of diesel out of the crude oil at the bottoms in that crude unit.

Paul Eisman - Executive Vice President, Refining and Marketing Operations

To quantify some of that, I have got the number here, and I think it's correct that shows our percent of heavy crude between the two refineries for the year 2007 was 30%. Our plan for 2008 is about 43%.

Kenneth Pounds - Nutmeg Securities

Great.

Doug Aron - Vice President, Corporate Finance

And just let's put out a small qualifier on that. The beauty of our plants is the flexibility to run heavy crude when our... the margins drive us to do that but if can you go back and look at May of '07, for example, where we saw a $50 gasoline crack and a $40 diesel crack. There was no incentive to run light heavy so... or to run heavy barrels rather. And we will run it, and we believe that we will continue to be in the money and that we will run, as Paul said, a plan that shows 40% heavy but if crack spreads blow out, we reserve the right to change that plan in order to make you all more money if that's okay with you.

James R. Gibbs - President and Chief Executive Officer

Yes that's right. Well said.

Kenneth Pounds - Nutmeg Securities

Great thank you.

Operator

And that does conclude our question-and-answer session Mr. Gibbs I'll turn the conference back over to you.

James R. Gibbs - President and Chief Executive Officer

Thanks for participating in our conference call. If you have any more questions or want more detail you can call Doug, if you want some color you can call me. We hope that next time we have this conference call. I'll be in a better mood and have a better attitude, but just quite frankly quarterly earnings were discouraging. And we had played great part in making those very discouraging and it's not going to happen again. With that said, thanks for your participation and hope to talk to you again in 90 days or earlier.

Operator

And that does conclude today's conference. Again, thank you for your participation.

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