Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



A Refiner on Fire

With so many analyst eyeballs on Valero (NYSE: VLO  ) , it's remarkable that the refiner's results can still pack a surprise. But surprise they did, and the entire refining group caught fire. Just like Valero's Aruba refinery last week.

This is the magic of diminished expectations at work. Everyone anticipated that high crude costs would cramp Valero, Frontier Oil (NYSE: FTO  ) , and Western Refining (NYSE: WNR  ) in the fourth quarter. Less obvious was the cushioning impact of deep discounts on lower-grade Maya and Mars crude stocks. Maya hails from south of the border, while Royal Dutch Shell (NYSE: RDS-A  ) (NYSE: RDS-B  ) produces Mars in the Gulf of Mexico.

Thus, while Valero's throughput for the quarter was nothing to sing about, its throughput margin was resilient, falling only 7% sequentially in a very tough pricing environment. Most expenses were in line with guidance, though general and administrative charges came in a bit high, because of stock compensation and charitable giving. (Or just charitable giving, depending on your view of stock options.)

Cash operating expenses -- i.e. per-barrel operating costs before depreciation and amortization -- have been creeping up as well, but this is an issue for Tesoro (NYSE: TSO  ) , Alon USA (NYSE: ALJ  ) , or pretty much anyone else in this industry. Refinery turnarounds are a permanent part of this business, and management noted that work quality and productivity issues persist at these contractor-reliant upgrade and maintenance activities. The need to frequently clean and replace equipment is intensified by Valero's reliance on heavier crude that gunks up the works. (I'm pretty sure that's a technical term.)

Looking ahead, the Valero team expects "an excellent spring/summer gasoline season" and strong margins for diesel fuel. The latter stems partly from export demand, since ultra-low sulfur diesel is all the rage in other parts of the world. Despite domestic economic uncertainty, it's a given that the company will keep rationalizing its asset portfolio, all the while generating and returning copious cash to shareholders in the form of buybacks and dividends. Even if something catches fire along the way.

Read/Post Comments (0) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 566210, ~/Articles/ArticleHandler.aspx, 10/27/2016 7:09:37 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:01 PM
VLO $58.81 Down -0.71 -1.19%
Valero Energy CAPS Rating: ****
ALJ $8.10 Down -0.12 -1.46%
Alon USA Energy CAPS Rating: *****
FTO.DL2 $0.00 Down +0.00 +0.00%
Frontier Oil Corp CAPS Rating: *****
TSO $83.21 Down -1.12 -1.33%
Tesoro CAPS Rating: ***
WNR $29.21 Down -0.70 -2.34%
Western Refining CAPS Rating: ****