August 6, 2014 / 11:36 AM / 3 years ago

UPDATE 2-HollyFrontier sees higher refining margins in third quarter

3 Min Read

* 2nd-qtr adj profit $0.99/shr vs est. $0.95/shr

* Sees significant improvement in asphalt and fuel margins

* Says Venezuela's Citgo Petroleum assets would be "good fit"

* Shares up nearly 3 pct in morning trade (Adds executive, analyst comments; updates shares)

Aug 6 (Reuters) - U.S. refiner HollyFrontier Corp reported a better-than-expected profit for the third quarter in a row and said it expects higher margins from turning crude oil into other fuels and asphalt in the current quarter.

The operator of refineries in Kansas, Oklahoma, New Mexico, Wyoming and Utah has typically benefited from easy access to cheap U.S. shale crude.

Like other U.S. refiners, HollyFrontier sells refined petroleum products at prices linked to the more expensive global benchmark Brent, helping it realize big margins.

"We've seen a significant improvement in asphalt and fuel cracks in July across all regions, relative to second-quarter levels, which should lead to an improved margin capture during the third quarter," Chief Executive Mike Jennings said on a conference call with analysts.

Cracks refer to the differences between the prices for crude oil and the petroleum products extracted from it.

Jennings, in response to an analyst question, also said that the assets of Venezuela's Citgo Petroleum would be "a good fit" if they were for sale.

Venezuelan state oil company PDVSA will sell U.S. refining subsidiary Citgo Petroleum if it receives a good offer, Petroleum Minister Rafael Ramirez said on Tuesday.

"We look hard at all these types of opportunities, particularly those with an inland crude supply tributary," Jennings said on Wednesday. "Citgo would obviously fit that."

HollyFrontier shares were up nearly 3 percent at $47.04 in morning trading on the New York Stock Exchange.

Profit Beats

A recent spike in U.S. crude prices ate in to HollyFrontier's refining margins in the second quarter ended June 30.

Margins shrank 28 percent to $14.54 per barrel produced, but were roughly in line with analyst expectations. Barclays analysts said they were expecting $14.70 per barrel.

The slight miss in margins was offset by higher-than-expected throughput volumes, Raymond James analysts wrote in a note, adding that this had been "a common theme this refining earnings season."

HollyFrontier processed 472,590 barrels per day (bpd) in the quarter, 13 percent more than a year earlier.

The company expects to process 405,000 barrels per day in the third quarter due to work at its refineries in El Dorado, Kansas, and Artesia, New Mexico.

Shrinking margins pushed the company's net income attributable to shareholders down 31 percent to $176.4 million, or 89 cents per share.

Excluding a $31 million charge related to the writedown of several assets at the company's Navajo, Cheyenne and Tulsa refineries, HollyFrontier earned 99 cents per share.

Analysts on average were expecting a profit of 95 cents per share, according to Thomson Reuters I/B/E/S. (Reporting by Swetha Gopinath in Bangalore; Editing by Kirti Pandey and Simon Jennings)

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