Oil refiner and marketer Western Refining Inc. (WNR) reported better-than-expected first quarter results, helped by higher sales volumes. Its loss per share, excluding special items, came in at 35 cents, narrower than the Zacks Consensus Estimate of 47 cents.
In the year-ago period, the Texas-based company earned 76 cents per share (not including one-time items). The main factors causing the year-over-year negative comparison reflects lower margins and throughput on the back of weak fuel demand and high inventories caused by the prolonged economic slowdown. Results were also dragged down by major turnaround work that was performed at El Paso and the planned maintenance at Gallup during the quarter.
Revenue of $1.9 billion was up 40.0% from the first quarter 2009 level.
Refining Segment Results
Western’s refining segment experienced an operating loss of $26.9 million, compared to a profit of $134.0 million in the year-earlier quarter. Segment results were adversely impacted by a continued weak economy, reduced demand for transportation fuels, and the consequent weakness in finished product prices, all of which resulted in lower refining margins.
Throughput
Total refining throughput averaged 192,974 barrels per day (Bbl/d), compared with 229,453 Bbl/d in the year-ago quarter. Overall throughput volumes in Western’s Yorktown refinery fell 13.1% year-over-year to 61,287 Bbl/d, while for the Four Corners refineries, it was down approximately 16.5% to 21,066 Bbl/d. Throughput in the El Paso refinery decreased 17.3% year-over-year to 110,621 Bbl/d.
Refining Margins
Gross refining margin decreased 52.9% year-over-year to $6.38 per barrel. In terms of different regions, refining margin was down approximately 49.1% in El Paso to $6.91 per barrel, 76.4% in Yorktown to $2.80 per barrel, and roughly 16.9% in Four Corners to $15.27 per barrel.
Operating Expenses
Direct operating expenses during the quarter averaged $4.73 per barrel, down 7.3% year-over-year. Costs in El Paso, Yorktown and Four Corners were $3.77 per barrel (down 1.6% year-over-year), $4.54 per barrel (down 12.7%), and $7.54 per barrel (down approximately 24.7%), respectively.
Capital Expenditure & Balance Sheet
Western’s total capital spending during the quarter was $18.8 million, down from $38.7 million in the year-ago period. As of Mar 31, 2010, Western had cash on hand of $25.3 million and total debt of approximately $1.2 billion, representing a debt-to-capitalization ratio of 65.3%.
Company Initiatives
Given the weak refining margin environment, Western has taken certain strategic actions to improve performance and competitiveness in a cost-effective manner. As part of this effort, Western has consolidated the operations of its Four Corners refineries (Bloomfield and Gallup) into one at the Gallup refinery. The company hopes to save $25 million annually (beginning in the first quarter of 2010) through this streamlining.
Western has identified and implemented another $25 million in cost savings initiatives that include the reduction of contractor services at the company’s refineries, changes in its “Wholesale” operations in response to market conditions, closure of the underperforming retail outlets, and restricting its executive compensation and other employee-related costs.
Guidance
For the second quarter of 2010, total refinery throughput is anticipated to be approximately 195,000 – 205,000 Bbl/d. Operating costs are likely to be approximately $3.75 per barrel at El Paso, $6.50 per barrel at the Gallup refinery and $5.25 per barrel at Yorktown. The company further informed that it expects capital spending for 2010 to be approximately $100 million, 80% of which will be for regulatory projects.
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