QUOTE AND NEWS
Forbes  8 hrs ago  Comment 
According to a new analysis from S&P Capital IQ, not all retailers will end up on investors' naughty list on Boxing Day: this shortened shopping period will benefit e-commerce companies like Amazon while warming consumer sentiment will boost sales...
guardian.co.uk  Nov 11  Comment 
Six years ago, the president and the Department of Veterans Affairs promised to end veteran homelessness by 2015. Even as the VA battles scandal, homeless vets like Bobby find themselves locked out of aid and getting by with the help of nonprofit...
Reuters  Oct 24  Comment 
* Announces agreement to acquire full ownership of Mt. Holly smelter
SeekingAlpha  Oct 20  Comment 
By Probio Invest: iBIO (NYSEMKT:IBIO) spiked nearly 70% after the "U.S. requests production plans for Ebola drug ZMapp" news broke in the early afternoon on Friday. The news reported that government officials have asked "three advanced biology...
SeekingAlpha  Oct 20  Comment 
By Asean Century: Knoll (NYSE:KNL) reported Q3 EPS of $0.33, which beat expectations by $0.03 and was a big improvement over last year's $0.18. Knoll also beat expectations in Q2 and Q1. Revenues grew almost 24% y/y to $268.3 million and were...
The Australian  Sep 10  Comment 
HOLLY Kramer knows the feeling all too well. As do a large number of women at senior levels of the corporate world.
New York Times  Sep 9  Comment 
Ms. Bobo was 20 when she disappeared in Parsons, Tenn., in 2011, and four people have been accused in connection with her death.
Automotive World  Sep 2  Comment 
Magna International Inc. has reached a production milestone at its electronics facility in Holly, Michigan, where the 10 millionth automotive rearview camera was recently manufactured. With more than 130,000 square feet of engineering and...
Times Online  Aug 8  Comment 
As I am being escorted backstage at the ITVThis Morning studios, a heavily pregnant woman heaves into view. She has...




 

Holly Corporation (NYSE:HOC) is a petroleum refiner with a total capacity of 111,000BPD; it’s markets are western Texas, New Mexico, Arizona, and Utah. Its main input, crude oil, has historically had volatile prices, making the company's margins volatile as well. From the first half of the year through July 2008, oil prices more than doubled, to $147[1] a barrel, increasing operating costs and decreasing Holly’s profit margins. By the end of October, however, they fell once again below $70 a barrel.[2]

Holly’s markets are geographically isolated from non-local refineries, making transportation costs too expensive for distant refiners to compete with local ones. However, once the Longhorn Pipeline is expanded from 72,000BPD to 125,000BPD[3], it will let larger refineries from the Gulf Coast pump more, cheaper petroleum products into the Southwest. In response, Holly is seeking to invest $650M[4][5] to expand its capacity, but this expansion will require it to seek debt, and the financial crisis has made credit far more expensive and difficult to procure.

Company Overview

Error creating thumbnail
Holly's 2007 Revenue vs Income[6]

Holly is a petroleum refiner with a crude capacity of 111,000 bpd (barrels per day); it produces gasoline, diesel, and jet fuel. Additionally, Holly owns Holly Asphalt Company which manufactures asphalt products in Arizona and New Mexico; the company also owns a 45 percent stake in Holly Energy Partners which owns 1,700 miles of pipelines in Texas, New Mexico, and Oklahoma. [6]

Business Financials

During fiscal 2007, Holly’s net income increased 25% from $266 M in 2006 to a record $334 M. [6] Total revenue for 2007 reached $4.791 B, increasing 19 percent from 2006; primarily, this is a result of increased production levels and sales.[6]

Error creating thumbnail
Holly's 2007 Sales Distribution[6]

Navajo Refinery

With a crude oil capacity of 85,000 BPD, the Navajo Refinery distributes its refined products to Arizona, New Mexico, and western Texas; it uses Holly Energy Pipeline's infrastructure to transport its products to these regions.[6] Its largest markets are: El Paso, Texas, Albuquerque, Moriarty, and Bloomfield, New Mexico, Phoenix and Tucson, Arizona, and northern Mexico. Its location is naturally endowed with abundant supplies of crude oil, which it purchases from producers in the surrounding areas. Gasoline (59 percent) and diesel fuels (30 percent) are the Navajo refinery’s best selling products.[6]

Woods Cross Refinery

Woods has a crude oil capacity of 26,000 BPD; its products are sold in Utah, Idaho, Nevada, and Wyoming. Gasoline (63 percent) and diesel fuels (27) are Holly’s best selling products in this region.[6]

Holly Asphalt Company

The operation of Holly’s Asphalt Company is consolidated with its refineries. Asphalt products made up 2 percent of all sales for the Navajo Refinery[7] and 1 percent for the Woods Cross Refinery[8] in 2007.

Holly Energy Partners (HEP)

Holly owns a 45 percent stake in HEP which operates pipelines and distribution terminals in Texas, New Mexico, Utah, Arizona, Idaho, Washington and Oklahoma. Its revenue comes from charging refineries to use its pipelines.

Key Trends and Forces

The 2008 Financial Crisis Impairs Holly Access to Financing

Holly will be installing a $245M hydrogen plant and a new 15,000BPD hydrocracker. [4] These improvements will increase the crude capacity of its Navajo Refinery to approximately 100,000BPD by 2009. The company is also improving its Woods Cross Refinery, adding a new 15,000BPD hydrocracker and purchasing sulfur recovery and desalting equipment totaled at $105M. [5] This will expand Woods Cross Refinery to 31,000 bpd. In addition, Holly has entered a joint venture with Sinclair Transportation Company to build a pipeline from Salt Lake City, Utah to Las Vergas, Nevada. This $300M pipeline will have an initial capacity of 62,000 bpd, with the ability to expand to 120,000 bpd.[5]

Holly is planning on investing more than half a billion dollars in expanding its facilities. It is increasing its supply, a factor it controls, in hopes that demand will also follow, a factor out of its control. Another reason for the capacity expansion is to continue the use of the Longhorn Pipeline at capacity and keep out Gulf Coast competitors. By being able to produce more refined products, it will be able to occupy more space when the Longhorn Pipeline is expanded, leaving little to no room left for its competitors. However, these investments will require the company to take out debt, and with tightening credit markets, it will be difficult and expensive for Holly to obtain loans.

The series of bank and insurance company failures in 2008 halted global credit markets and has shrunk the capital supply available for institutional investors. The reluctance of banks to lend, even amongst each other, affects small companies such as Holly. Companies incur debt in order to invest, expand, and become more competitive, but with credit markets constricted, it is nearly impossible to take such actions.

The Financial Crisis is Leading to a Recession, which will Decrease Demand for Refined Petroleum

The 2008 Financial Crisis is hurting the economy as a whole, creating an economic slowdown. A lack of liquidity and shrinking credit markets leads to slower economic growth, as well as a decrease in consumer spending. During the third quarter of fiscal 2008, consumption fell 3.1 percent at an annual rate according to gross domestic product figures.[9] A weakening economy has led to predictions of falling demand in developed countries (including the U.S.).[10] Holly is vulnerable to a decline in the demand for refined products as a result of an economic downturn. Domestic sales of refined petroleum products have fallen in 2008; motor gasoline sales have received the worst hit. Sales of refined products fell 3.4 percent in June[11], stayed relatively flat in July[12], fell 6.3 percent in August[13], and stayed the same in September[14] when compared to the same months a year earlier.

Holly is dependent on crude oil, which has fluctuating prices

Holly’s profit margin on refined products depends on crude oil prices. Its business is based on refining crude oil, and so the company must purchase this input from distributors; prices for crude oil vary from day to day, and can have exaggerated fluctuations. Oil prices are out of Holly’s control, as they are set on international commodities markets. In about a three month period, prices dropped 133 percent, from $147 in early July 2008 to $63 in late October[1][2], after more than doubling in the first half of the year. Lower oil prices benefit the company by lowering production costs, but exaggerated price fluctuations mean it's often difficult to predict margins. When prices rise, Holly's margins shrink, and could even go negative; the prices for refined products (also commodities) are influenced by the price of crude oil, but prices must remain affordable for consumers in order for demand not to decrease drastically.

Holly’s competitors are much larger

One of Holly’s most valuable sources of income is through its Navajo Refinery which operates in the southwestern states. Holly is a small size refiner, and competes with other small-size refiners in the region. The construction of the Longhorn Pipeline means new, powerful competitors are have entered Holly's market. This pipeline transports refined products from the Texas Gulf Coast to El Paso, and through other interconnected pipelines it can carry on into Arizona. [3] This means that Holly’s consumers are able to obtain cheaper Gulf Coast products. The Longhorn pipeline is operating at capacity but there is a planned expansion from 72,000BPD to 125,000BPD, which will let larger refineries from the Gulf Coast pump more refined petroleum into Holly's market and lead to price competition and lower margins.[3]

Competitors

Holly competes against small size refineries in its western markets of Texas, Arizona, and New Mexico; Western Refining (WNR) and Valero Energy (VLO) are its biggest competitors in these regions. However, the Longhorn Pipeline makes it feasible for larger Gulf Coast companies such as Exxon Mobil to enter these markets, meaning the company will begin seeing competition from larger companies.

Revenue ($ in M) Net Income ($ in M) Production Capacity (bpd)
HOC $4,791.7 $334.1 111,000
Exxon Mobil (XOM) $404,552 $40,610 5,700,000
Western Refining (WNR) $7,305 $238.6 234,000
Valero Energy (VLO) $98,327 $5,234 3,100,000
[15][16][17]




References

  1. 1.0 1.1 Dollar Dims Gold Outlook August 13, 2008
  2. 2.0 2.1 Oil Ink: OPEC Slashes Output, Crude Price Falls October 24, 2008
  3. 3.0 3.1 3.2 HOC 2007 10-K, Pg 24
  4. 4.0 4.1 HOC 2007 10-K, Pg 13
  5. 5.0 5.1 5.2 HOC 2007 10-K, Pg 16
  6. 6.0 6.1 6.2 6.3 6.4 6.5 6.6 6.7 Holly 4Q and Annual Results, 2007
  7. 2007 HOC, 10-k, Pg 12
  8. 2007 HOC, 10-k, Pg. 16
  9. Consumer Spending Declines, November 1, 2008
  10. Oil Demand Will Grow, Despite Prices, Report Says, July 2, 2008
  11. Domestic sales of refined petroleum products, August 8, 2008
  12. Domestic sales of refined petroleum products, September 5, 2008
  13. Domestic sales of refined petroleum products October 8, 2008
  14. November 7, 2008
  15. Holly Competitors, Yahoo Finance
  16. WNR 10-K 2007, Pg 4
  17. VLO 10-K 2007, Pg 2
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki