Independent Refiner 2Q 2013 Earnings Summary | RefinerLink
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Independent Refiner 2Q 2013 Earnings Summary

By Steve Pagani

Aug 13, 2013
 

Spring often signals new life and rebirth, unfortunately for most of the Independent Refiners the second quarter 2013 was a season of disappointment. Refinerlink explores what went wrong for independent refiners in the second quarter of 2013.       

 
 

For the independent refiner in the second quarter 2013, there where many new challenges to navigate.  The Brent-WTI ARB bubble continued to burst then the RIN cost started to hit hard and finally unplanned and planned maintenance crippled anyone left standing.

 

Second quarter independent refiner earnings were down 18% from the first quarter and the total independent refiner earnings were below three billion dollars for the first time in over a year.  Nearly every refinery had one of its worst earnings since Refinerlink has started analyzing the data.

 

 

 

 

 

Three factors hampered second quarter refiner earnings. First, the Brent-WTI ARB, or inland crude discount, which benefited most of the independent refiners collapsed in the second quarter. The inland crude discount squeezed the cost side of the gross margin equation for each of the independent refiners just as the second factor impacting the independent refiners started to ramp up.

 

 

In the second quarter 2013, the independent refiner came to the realization the RINs were now a four letter word.  For those independent refiners without marketing branches or with undersized marketing branches the cost of RINs could be devastating to their long-term survival.

 

 

Finally, unplanned and planned maintenance punished anyone left standing after Brent-WTI and RIN costs were absorbed.

 

 

While the second quarter 2013 did punish several of the independent refiners, there were a couple of bright spots that earn praise. Alon, CVR, and Western all had some sort of positive accomplishment.

 

 

 

 

Leading the group with low operating expense were Alon and CVR both with sub $5/bbl operating expense.  Alon’s earnings, $20MM, continue to lag behind the rest of the independent earnings mainly, because of their minuscule scale compared to behemoths like P66 or Marathon.

 

 

CVR’s earnings held strong in the second quarter, $183MM, and even grew compared to the first quarter, $154 MM.  How did CVR grow earnings? Well, it appears that their disciple to operating expense and increased crude processing capacity has paid real dividends. 

 

 

Western Refining’s earnings, $124 MM, were held up by hitting the highest refining margin per barrel at nearly $21/bbl of the group of independent refiners. While many suffered from a narrowing Brent-WTI ARB it appears that through a strategic hedging program Western was able to maintain high per barrel earnings.

 

 

 

 

Middle of the pack in the second quarter among the independent refiners was PBF, Phillips 66, Tesoro, and Valero. All of these independent refiners suffered as unplanned and planned refinery maintenance combined with the narrowing ARB and rising RIN cost squeezed their profit margins.

 

 

PBF’s O’Malley summarized it best “We expect to spend over $200 million on RINs in 2013 based on current market conditions. This is one of the company’s largest single cost categories other than crude oil purchases. It exceeds the salaries and wages we pay to operate all three of our refineries.”

 

 

The bottom of the pack for the second quarter 2013 for the independent refiners was HollyFrontier and Marathon in terms of operating expense; both refiners averaged over $6/bbl. While operating expense and low gross margin per barrel aren’t the only story it’s hard to maintain long-term successful performance without strict control of operating expense and growth in per barrel margins.

 
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