Oil refiner and marketer Western Refining Inc. (WNR) reported weaker-than-expected third quarter results, pulled down by lower margins and throughput on the back of weak fuel demand and high inventories caused by the prolonged economic slowdown. This was partially offset by lower costs and expenses. Its loss per share came in at 5 cents, wider than the Zacks Consensus Estimate of 3 cents.

In the year-ago period, the Texas-based company earned $1.60 per share. Revenues were down 40.1% year over year to $1.9 billion. Western follows larger rivals Valero Energy Corp. (VLO) and Sunoco Inc. (SUN) that also posted bigger-than-expected losses.

Refining Segment Results

Western’s refining segment experienced a significant decline in operating income (operating income of $22.2 million vs. $180.8 million in the year-earlier quarter), adversely impacted by weak values for finished products, relative to crude and other feedstock prices.


Total refining throughput averaged 223,129 barrels per day (Bbl/d), compared to 230,814 Bbl/d in the year-ago quarter. Overall throughput volumes in the El Paso refinery decreased 1.8% year-over-year to 130,142 Bbl/d. Throughput in the company’s Yorktown refinery fell 5.8% year-over-year to 64,538 Bbl/d, while for the Four Corners refineries, it was down approximately 4.4% to 28,449 Bbl/d.

Refining Margins

Gross refining margin decreased 51.6% year-over-year to $7.28 per barrel. In terms of different regions, refining margin was down approximately 38.2% in El Paso to $8.05 per barrel, 82.1% in Yorktown to $2.67 per barrel, and roughly 39.0% in the Four Corners to $14.04 per barrel.

Operating Expenses

Direct operating expenses during the quarter averaged 4.29 per barrel, down 11.0% year-over-year. Costs in El Paso, Yorktown and Four Corners were $3.01 per barrel (down 21.2% year-over-year), $4.98 per barrel (up 5.5%), and $7.64 per barrel (down approximately 2.6%), respectively.

Capital Expenditure & Balance Sheet

Western’s total capital spending during the third quarter of 2009 was $24.0 million, primarily comprising of regulatory projects at its refineries. As of September 30, 2009, Western had cash on hand of $65.0 million and long-term debt of approximately $1.1 billion, representing a debt-to-capitalization ratio of 57.7%.

Company Initiatives

Given the weak refining margin environment, Western has taken certain strategic actions to improve the company’s performance and competitiveness in a cost-effective manner. As part of this effort, Western plans to consolidate the operations of its Four Corners refineries (Bloomfield and Gallup) into one at the Gallup refinery. The company hopes to save $25 annually through this streamlining.

Despite shuttering the Bloomfield facility, Western will continue to operate the refinery’s products terminal and may use the idled plant to produce alternative fuels. The company is likely to incur charges of $55 – $65 million in the fourth quarter related to the consolidation.


For the fourth quarter, total refinery throughput is anticipated to be approximately 212,000 Bbl/d. Operating costs are likely to be approximately $4.36 per barrel at El Paso, $8.71 per barrel at the Four Corners refineries and $5.42 per barrel at Yorktown. The company further informed that it expects capital spending for 2009 to be within $120 million, as against its originally stated budget of $155 million. For 2010, Western plans to spend approximately $100 million.

Company Overview

Western Refining is an independent oil refiner that operates 4 refineries, 2 terminals, 4 asphalt terminals as well as retail service stations and convenience stores in Arizona, Colorado and New Mexico. Western also transports petroleum products throughout the Southwest.
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