November 4, 2010 / 12:32 PM / 9 years ago

WRAPUP 2-Strong margins boost smaller refiners

* Holly, Western Refining, Frontier profits beat Street

* Western Refining, Frontier bullish on Q4

* Delek posts wider loss as expenses offset better margins

* Western Refining at yr-highs, Frontier up 7 pct (Adds share movement, details from Frontier conference call)

By Adveith Nair

BANGALORE, Nov 4 (Reuters) - U.S. refiners Holly Corp HOC.N, Frontier Oil FTO.N and Western Refining WNR.N benefited from wider refining margins to join their bigger peers in posting strong quarterly results and signal a solid finish to the year.

Investors cheered the results, bidding shares of Western Refining to a new year-high, as the stock rose nearly 5 percent to $7.24. Frontier shares were up 7 percent at $14.59, their highest levels since June.

Shares of Holly rose 3 percent to $34.84, their highest levels in two years, but later pared the gains to trade down 3 percent.

The broader S&P oil & gas Refining and Marketing index .15GSPENRM was also up over 2 percent.

Profits have risen at oil companies as U.S. crude prices rose 13 percent from a year earlier, while natural gas rose more than 30 percent in the quarter. A recovering economy has also increased demand for the fuel, leading to improvement in refining margins.

For details on refinery turnarounds at Western Refining and Frontier Oil, please click [ID:nWEN2565] [ID:nWEN2573]

Refining margins are the difference between cost of crude oil and wholesale price of petroleum products like gasoline.

Over the past week, Marathon Oil (MRO.N) and smaller peer CVR Energy (CVI.N) have also reported strong quarterly profits on the back of strong refining margins. [ID:nN02162160] [ID:nSGE6A10IG]

BIG MARGINS DRIVE BEAT

Quarterly profit at Dallas-based Holly, the biggest refiner to reported on Thursday, more than doubled, sailing past estimates. Refining margins were up 26 percent. [ID:nASA00ZG7] “Continued strong diesel cracks at each of our refineries combined with robust gasoline cracks at our Woods Cross refinery and attractive lube margins at our Tulsa refinery helped fuel significant improved year-over-year third-quarter performance,” Holly CEO Matthew Clifton said.

Crack spread is the profit margin between the price of crude oil and petroleum products extracted from it.

Improved crack spreads also shored up results at Houston-based Frontier Oil, valued at $1.41 billion. The company reported a higher-than-expected profit after a year-ago loss. [ID:nASA00ZHI][ID:nASA00ZHI]

“The third quarter provided another opportunity for profitable refining with improved crude differentials and healthy product margins,” Chief Executive Mike Jennings said.

Refined product margins improved in the third quarter as domestic year-over-year demand improvement continued, Frontier said. The company’s average gasoline crack spread was up over 30 percent, while average distillate crack spread rose over 75 percent.

SOLID Q4 SEEN

On a conference call with analysts, Frontier said total charges for the fourth-quarter would come in at 194,000 barrels per day, up 8 percent from the third quarter. [ID:nWNAB0012]

El Paso, Texas-based Western Refining, which comfortably beat estimates on strong margins at its Southwest refineries, was similarly bullish on fourth-quarter margins. [ID:nASA00ZE2]

“We are optimistic about the fourth quarter due to the strength in diesel margins which offset the weaker gasoline margins that we typically see this time of year,” Chief Executive Jeff Stevens said.

The company, valued at $603 million, added gasoline and diesel margins for the fourth quarter were stronger than last year, echoing comments made by Valero Energy (VLO.N), the largest independent U.S. refiner. [ID:nN26131844]

Earlier on Thursday, Delek US Holdings (DK.N), the smallest refiner of the lot, also reported a 44 percent increase in refining margins. However, the company, valued at $398 million, reported a wider loss as throughput fell and operating expenses rose. [ID:nASA00ZCV] (Reporting by Adveith Nair in Bangalore; Editing by Jarshad Kakkrakandy, Vyas Mohan)

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