[Mechler]

Western Refining reports tomorrow. Analysts are looking for $0.94 per share, down from $1.99 per share last quarter. I'm guessing they miss, but who knows.

[pup55]

FTO also reports tomorrow.

Far be it from me, some guy on the internet, to tell anybody what to do, but it should be possible to go through and figure out which one of the refiners is the most efficient (highest refinery margins under the same conditions).

This will tell us which one is the most likely to fatten up when the market turns around in a couple of weeks.

HOC announced today, also:

$this->bbcode_second_pass_quote('', 'N')ov 6 (Reuters) - Refiner Holly Corp. (HOC.N: Quote, Profile, Research) reported lower third-quarter profit that missed Wall Street expectations, hurt by a decline in refined product margins.

[pup55]

Here they are so far:

Tesoro $8.61
Holly Corp $12.84
Frontier ?
Valero $9.82
Western ?

Those reptiles Chevron do not announce their refinery margins.

I would also point out that Valero was one of the leaders on the list of refinery shutdowns due to unexpected maintenance when we were keeping tally last spring.

[shortonoil]

pup55 said:

$this->bbcode_second_pass_quote('', 'I') would also point out that Valero was one of the leaders on the list of refinery shutdowns due to unexpected maintenance when we were keeping tally last spring.

[pup55]

$this->bbcode_second_pass_quote('', 'F')rontier Oil Reports Most Profitable Third Quarter in Company History
HOUSTON, Nov 07, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- Frontier Oil Corporation (NYSE: FTO) today announced quarterly net income of $137.2 million, or $1.28 per diluted share for the quarter ended September 30, 2007, compared to net income of $123.6 million or $1.10 per diluted share, for the quarter ended September 30, 2006

[UncoveringTruths]

$this->bbcode_second_pass_quote('', 'B')illionaire Kirk Kerkorian's Tracinda Corp. today began its $1.4 billion cash tender offer to buy almost 21.9 million shares of refiner Tesoro Corp. at $64 each, according to documents filed with the Securities and Exchange Commission.

Tracinda, in a letter to shareholders, explains how they may tender their shares.

Tracinda, wholly owned by Kerkorian, offered a 12 percent premium over the closing price of Tesoro shares the day before the offer was announced. At mid-day today, Tesoro's shares were trading for $58.19.

[Mechler]

$this->bbcode_second_pass_quote('pup55', '
')Here you have it:

Tesoro $8.61
Holly Corp $12.84
Frontier $20.51
Valero $9.82
Western $10.45

The Frontier CEO was reported as saying that he got Canadian tar sands oil for $50 under market value last quarter because of pipeline problems in Alberta.

[pup55]

Note that Kerkorian and Mechler are thinking the same: Buy when earnings and refinery margins are low, except in Kerkorian's case, he can buy the one that is the most inefficient, fire the dead wood that is running the place, and look for ways to turn it around.

The other companies on this list are equally candidates to be bought out, as we pointed out some time ago. In fact, we know that the market for new refinery capacity is 20,000 per BOD capacity, and I am confident that all of these companies are cheaper than that based on market value.

The only thing about Frontier is that if they are ideally suited to take the tar sands stuff, maybe they have a competitive advantage. The disadvantage they have is that their market is in the part of the country where nobody lives, namely the wide space between Denver and Omaha.

Everything else being equal, the more efficient, the better. They will be able to make money longer.

I guess we should check the PE's, while we are at it:

HOC 9.64
VLO 7.06
WNR 6.52
TSO 10.32
FTO 10.54

GOOG 57.34
MRK 22.03
MCD 30.20
WMT 14.72

I threw the last four in for comparison. Looks like all the refiners are relatively cheap.

[Starvid]

Everything which has got anything to do with oil is hillariously cheap.

ExxonMobil: 12.6
BP: 12,8
Total: 11,8
ConocoPhillips: 12,8

Ok, not everything.
Schlumberger: 23,7
Baker Hughes: 19,0

But here come my favourites, the offshore drillers.
Transocean: 14,5
Global Santa Fe: 13,1
Pride International: 8,4
Noble Corp: 8,6

Disclosure: I own the majors listed above, and Pride International.

[Mechler]

And, now, market cap...

HOC $3.3B
VLO $39.14B
WNR $2.35B
TSO $7.76B
FTO $5.04B

From my observations, Valero has been much less volatile than the others. I'm guessing it's due to the numbers above?

Also, is it that oil companies are so cheap, or that everything else is so expensive? Put another way, what will the PEs look like when a recession hits?

[Mechler]

Sorry for the double post, but I'll leave it since it's on the top of a new page...


And, now, market cap...

HOC $3.3B
VLO $39.14B
WNR $2.35B
TSO $7.76B
FTO $5.04B

From my observations, Valero has been much less volatile than the others. I'm guessing it's due to the numbers above?

Also, is it that oil companies are so cheap, or that everything else is so expensive? Put another way, what will the PEs look like when a recession hits?

[pup55]

I think Valero owns some retail operations, natural gas, and pipelines in addition to the refining capacity.

If you are a Benjamin Graham disciple, I believe he said that the long-term historical PE for the overall market is about 7, and anything above that is speculative. So with a PE of 28 or whatever, the SP500 is about four times overvalued based on its long term historical average.

The doomers will get a charge out of this. It suggests that the market could easily go down by 75% to be "fairly valued".

These refiners are cheap, because their "growth rate" has been historically low. I think their shrinkage rate is low too.

In 1982, Texaco was earning $8 per share, this was in the absolute height of the big recession. Today, as part of Chevron/Texaco, they are earning $7 per share, in modern-day dollars.

Historical Stock Data

For those fellow posters who have started to yawn on this, all of this has a bearing on the oil price and the availability of gas for your car. If the refiners have a PE of 8, and Google has a PE of 40, Google is going to find it easier to raise cash to expand their business. The refiners have to go into the same credit market and get money for their expansion projects and compete with the Googles of the world for money. If the project is not attractive enough, or too risky, Google will get the money.

The same goes for exploration and drilling, even more so because of the risk.

Ironically, if the housing thing really does move up the food chain and get into the realm of "prime" rather than just be confined to sub=prime, a lot of these potential energy projects are going to be impacted because no one can afford to finance them. This will make some of these so-called "advanced drilling" projects not viable from a business standpoint until the oil price gets high enough to justify the risk.

[shortonoil]

pup55 said:

$this->bbcode_second_pass_quote('', 'I')ronically, if the housing thing really does move up the food chain and get into the realm of "prime" rather than just be confined to sub=prime, a lot of these potential energy projects are going to be impacted because no one can afford to finance them.

[Mechler]

Refiners are being beaten up this week. WNR's PE is under 6. Anyone want to call a bottom, or will the broader market sell-offs continue to bring them down?

[pup55]

$this->bbcode_second_pass_quote('', 'b')roader market sell-offs

[Mechler]

Yes, I'll be interested in what MrBill has to say. I did buy some today, though. Maybe I was hasty, but I don't mind waiting a while for profits.

Since the RBOB situation is tight, investing in a pure refiner is sort of like hedging against declining crude prices. Although, maybe we should look at the other crack spreads as well. Do you know what percentage of refinery output is gasoline, on average?

[pup55]

$this->bbcode_second_pass_quote('', 'D')o you know what percentage of refinery output is gasoline, on average

[Mechler]

Ok, Pup - great info! That tells us that unleaded margins are the largest factor of the overall refining margins. What's the next largest - distillates?

Thanks!

[pup55]

$this->bbcode_second_pass_quote('', 'W')hat's the next largest - distillates?

[pup55]

Update:

Today's refinery margin, with a crude price of 94.35 and an unleaded price of 2.41, is 16.35 cents per gallon or $6.87 per barrel. As predicted, this stuff is coming back in line.

We are well above the "one standard deviation" "low normal" case that we calculated awhile back, which today would be $2.35 per gallon for unleaded, at the current crude price.

We still have about 14-15 cents to go, to get to the average of the last couple of years. Alternately, at the current price for unleaded, the crude price will have to drop to $88.62 for the current $2.41 to yield a respectable margin (do not be surprised if this happens).