High oil prices hurt Western Refining profit

Aug 08, 2008 (El Paso Times - McClatchy-Tribune News Service via COMTEX) -- WNR | Quote | Chart | News | PowerRating -- Aug. 8--EL PASO -- Western Refining had a profit of $8.2 million, or 12 cents a share, in the second quarter, well below the $155 million profit, or $2.29 a share, it reported for the same quarter a year ago, the El Paso company reported Thursday.

High oil prices combined with a soft gasoline market were the main reasons for the company's decline in profit compared to a year ago, the company reported.

The company's profit also was reduced by a $10.9 million, or 12 cents a share, write-off of loan fees in the second quarter, it reported. The company's profit also was reduced by $20.1 million in loan interest in the quarter.

"Gasoline margins continue to be lower than historical levels as a result of reduced consumer demand and product inventory buildups," Western CEO Paul Foster said in a written statement. However, diesel margins continue to be strong, and asphalt margins have improved, he noted.

Western lost $32.2 million in the first half of the year, compared with a profit of $217.5 million for the first six months of 2007.

"The results are pretty close to my expectations," said Ann Kohler, an analyst for Caris & Co., a New York investment bank. "The refining industry is faced with a challenging environment with crude oil hitting new highs and gasoline demand (declining)."

The big issue still facing Western is its huge debt, Kohler said. The company's debt was $1.5 billion at the end of second quarter -- a debt created by Western's acquisition last year of Giant

Industries.

Western's loan terms require it to reduce its debt by $250 million by Oct. 1, or the interest rate on its $1.3 billion term loan will increase substantially, Kohler said. The interest rate would increase 1.75 percentage points, a Western official reported. It also faces loan requirements later this year tied to the company increasing earnings, which is difficult in today's environment, Kohler said.

Michael Tian, an analyst for Morningstar, a Chicago investment research firm, said Western's refining margins improved from the first quarter. But "obviously everything deteriorated year over year in line with the rest of the industry."

Indications point to a sustained period of low refinery margins unless a dramatic event changed things, such as a hurricane taking a refinery or two out of operation in the United States, Tian said.

Western's stock closed down 31 cents a share Thursday at $6.97 a share on the New York Stock Exchange. The stock peaked at $66 a share in July 2007.

Vic Kolenc may be reached at vkolenc@elpasotimes.com, 546-6421

Highlights

Western Refining's second-quarter results compared to a year ago:

--Sales: $3.4 billion, up $1.7 billion, or 100 percent.

--Profit: $8.2 million, down from $155.0 billion.

--Gross profit per barrel: $8.20, down from $21.08.

--Crude oil processing: 221,000 barrels per day, up from 148,300 barrels per day.

Source: Western Refining.

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