QUOTE AND NEWS
Benzinga  Nov 18  Comment 
Analysts at Barclays initiated coverage on Electronic Arts (NASDAQ: EA) with a Overweight rating. The target price for Electronic Arts is set to $48. Electronic Arts' shares closed at $41.40 yesterday. Analysts at Goldman Sachs initiated...
Market Intelligence Center  Oct 24  Comment 
MarketIntelligenceCenter.com’s patented algorithms have chosen the Dec. '14 $43.00 call for a couple of hedged-trading ideas on Western Refining (WNR). A traditional covered call on Western Refining yields 4.52% (28.95% annualized, for...
Market Intelligence Center  Oct 14  Comment 
After closing Monday at $39.70, Western Refining (WNR) presents an attractive opportunity to get a 6.27% return in just 67 days, which is an annualized return of 34.14% (for comparison purposes only). To enter this trade, sell one Dec. '14 $39.00...
StreetInsider.com  Sep 25  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/Western+Refining+Logistics+%28WNRL%29+to+Acquire+Wholesale+Business+From+Western+Refining+%28WNR%29+fo+%24360M/9862380.html for the full story.
Forbes  Sep 25  Comment 
The most recent short interest data has been released by the NASDAQ for the 09/15/2014 settlement date, which shows a 3,617,290 share decrease in total short interest for Western Refining Inc (NYSE: WNR), to 3,610,601, a decrease of 50.05% since...
Market Intelligence Center  Sep 19  Comment 
Western Refining (WNR) was selected by MarketIntelligenceCenter.com’s trade-picking algorithms today after trading between $43.04 and $44.01 on Thursday before closing at $43.62. A diagonal spread using a long position in the Jan. '16 $25.00...
OilVoice  Sep 18  Comment 
Western Refining Inc. NYSEWNR announce that it has entered into an agreement for the acquisition of the 25000 barrel per day bpd idled Wingate Fractionation Plant in Gallup New Mexico from Con
The Market Financial  Aug 21  Comment 
This morning, the important oil refinery sector is coming under selling pressure. Leading oil refinery stocks such as Tesoro Corporation (NYSE:TSO), Phillips 66 (NYSE:PSX), Marathon Petroleum Corp (NYSE:MPC), and Western Refining Inc (NYSE:WNR)...




 

Western Refining (NYSE: WNR) owns and operates four oil refineries in the Southwest United States, with a capacity of 234,000 barrels per day (bpd). Western Refining's profits are determined primarily by the cost of refining crude-oil and the prices at which the Company can sell those refined products. However, Western Refining has increased the amount of cheaper, low-grade crude oil that its refineries can process in anticipation of higher crude prices and lower profit margins in the future.[1]

Western Refining faces new competition from Gulf Coast oil companies, which have begun to supply the Southwest United States through the Longhorn Pipeline. In response,Western Refining has expanded its refining capacity through acquisitions of other independent refiners. In particular, Western Refining’s 2007 purchase of Giant Inc. doubled their refinery capacity.

Company Overview

Western Refining's operations are segmented into Refining, Wholesale, and Retail. However, all three segments are exposed to fluctuations in the price of and demand for refined petroleum products.

Refining Segment (2010 Net Sales: $8.07 billion )[2]

Western Refining operates refineries in El Paso and New Mexico, which make various grades of gasoline, diesel fuel, jet fuel, and additional products from crude oil and other feedstocks. The company has total crude oil throughput capacity of approximately 221,000 barrels per day (bpd). Its The Yorktown shutdown, which was completed in September 2010, was recorded as a one-time $13 million cash charge in the second half of 2010.[3] With production capacity of 124,000 bpd, Western Refining’s El Paso site is its largest producer of crude oil. Each of these refineries has its own distribution centers and sells these products to service stations, independent wholesalers and retailers, and other energy companies.[4]

Net sales in this segment improved 22% year-over-year to $8.07 billion in 2010 primarily because improved margins toward the end of 2010.[5] For the fourth quarter 2010, Refining margin per barrel was $10.12, versus $4.89 for the final quarter 2009. However, sales volumes for 2010 were 248,785 bpd, compared to 258, 259 bpd for 2009. The company has undergone a substainial amount of cost saving initiatives, including temporary plant shuts. However, operating income improved for the refining segment.[6] For 2010, operating income was $119 million. For 2009, Western Refining reported a net loss of $140 million.[7]

Wholesale Segment (2010 Net Sales: $2.47 billion)

Western Refining’s wholesale segment owns several lubricant and bulk petroleum distribution plants. It sells commercial wholesale petroleum products in Arizona, California, Colorado, Nevada, New Mexico, Texas and Utah.[8] This segment purchases fuels and lubricants from the Company’s refining segment and some third party distributors. The wholesale segment distributes primarily to mining, construction, and transportation industries.[9] The wholesale segment was acquired during the Giant acquisition of 2007. [10]

In 2010, net sales for this segment rose by approximately 48% on a year-over-year basis.[11] While fuel margins remained flat compared to 2009 levels, both the quantity of fuel and lubricant sold rose substantially from their 2009 levels.[12] In particular, fuel gallons sold by its wholesale segment rose 22.6% year-over-year.[13]

Retail Segment (2010 Net Sales: $718 million)[14]

Western Refining’s retail segment operates service stations, convenience stores and kiosks in Arizona, New Mexico, and Colorado. The Company’s refining segment supplies all of the service stations with gasoline and diesel fuel. Its service stations and convenience stores sell a variety of merchandise and food products. The retail segment was acquired during the Giant acquisition of 2007.[15] Fuel sold at retail stores improved by less than 1% year-over-over.[16] Fuel margin per gallon improved from $0.18 in 2009 to $0.19 in 2010.[17]

Trends and Forces

American environmental concerns have potential to curtail refining output for independent refiners

According to a report published by the American Petroleum Institute, the American Clean Energy and Security Act bill has the potential of leading to a 17 percent reduction in U.S. refinery output by 2030.[18] The bill creates a cap-and-trade system that control greenhouse gases by creating a market for emissions permits.[19] Refiners have the potential of paying for emissions in two ways.[20] First, the cap-and-trade restrictions apply to the refineries, plants, and gas-powered transportation used by refiners to produce and distribute petro-products. Although refiners account for 4% of the greenhouse gas emissions in the U.S., only 2.25% of the permits have been allocated for the refining industry.[21] Additionally, the cap-and-trade bill has the potential of applying the permit system to the exhaust from automobiles, planes, trains, and heating oil. However, the emissions restrictions do not apply to foreign countries. According to the American Petroleum Institute, the bill is capable of raising the cost of domestic refining to the point where imported gasoline is less expensive.[22] The study claimed that in its worst-case scenario, the cap-and-trade system has the potential of reducing annual U.S. refining investments by up to $89.7 billion, reduce refinery utilization rates by 20%, and leading to a cut in refinery production by up to 4.4 million barrels a day.[23]

Oil Prices Are Volatile, and are the Primary Determinant of WNR's Profits

Because oil prices are subject to volatility, it is difficult to predict revenue and earnings growth for small refiners. Almost all of Western Refiner’s refineries come from sale of refined products, and their profits are determined by the cost of crude and the price they can sell those products. For refiners like Western Refining, demand and prices make it much more difficult to generate profit from the sale of refined products. With lower margins, Western Refining would have less financial capital to invest in improving current refining infrastructure and expanding the amount of refineries it controls.

Competition

Alon USA Energy, INC (ALJ): Alon US Energy is an independent refiner and marketer of petroleum products in the South Central, Southwestern, and Western Regions of the United States. The Company operates in three segments: refining, asphalt, and retail. Alon operates two refineries in Texas and two refineries in California. Alon’s four refineries have a throughput capacity of 228,000 bpd. [24]

Valero Energy Corp. (VLO): Valero Energy operates 17 refineries located in the United States, Canada, and Aruba with a total throughput capacity of 3.1 million bpd. In the United States, Valero distributes its refined products in the Gulf Coast, Mid-Continent, West Coast, and Northeast. Its also owns retail stores in all of these regions of the United States.[25]

ConocoPhillips (COP): ConocoPhillips is an integrated energy company operating in six segments: Exploration and Production, Midstream, Refining and Marketing, Lukoil investment, Chemicals, and Emerging Businesses. It operates primarily in the United States, Canada, Norway, the United Kingdom, and Indonesia. In the United Sates, ConocoPhillips is the second-largest refinery operator. It has refining throughput capacity of 2 million bpd. Additional revenue comes from a midstream natural-gas gathering system and a 20% stake in the Russian energy company Lukoil.[26] Conocophillips does not have a significant presence in the Southwestern United States and is not one of the Gulf Coast oil companies that uses the Longhorn pipeline.

Holly Corp. (HOC): Holy Corp. is a United States-based petroleum refiner. The Company operates two oil refiners and distributes its refined products in the Southwest and West United States. Holly Corp. also owns 900 miles of crude oil pipelines located in Texas and New Mexico. the Company transports asphalt and liquid petroleum gas(LPG) to wholesalers and LPG retailers.[27]



Notes

  1. Western Refining Reports First Quarter 2009 Financial Results, May 2009
  2. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  3. Westernrefining.com:Western Refining Announces Completion of Refining Operations Shutdown at Yorktown, September 2010
  4. WNR 10-K for 2008, Item 7: Fiscal Year Ended December 31, 2008, Compared to Fiscal Year Ended December 31, 2007
  5. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  6. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  7. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  8. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  9. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  10. WNR 10-K for 2007, Item 1: Wholesale Segment, pages 9-10
  11. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  12. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  13. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  14. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  15. WNR 10-K for 2007, Item 1: Retail Segment, page 9
  16. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  17. Western Refining PR: Western Refining Announces Fourth Quarter and Full Year 2010 Results, March 2011
  18. Allbusiness.com: Oil refiners: Cap-and-trade will cost, September 2009
  19. Allbusiness.com: Oil refiners: Cap-and-trade will cost, September 2009
  20. Allbusiness.com: Oil refiners: Cap-and-trade will cost, September 2009
  21. Allbusiness.com: Oil refiners: Cap-and-trade will cost, September 2009
  22. Allbusiness.com: Oil refiners: Cap-and-trade will cost, September 2009
  23. Allbusiness.com: Oil refiners: Cap-and-trade will cost, September 2009
  24. Reuters.com: ALJ
  25. Reuters.com: VLO
  26. Morningstar.com: COP
  27. Yahoo! finance: HOC
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