Will Western Refining Turn Around?

Earlier this year, I wrote an article about how Western Refining (NYSE: WNR  ) could be scripting a turnaround. Looking back, 2011 can definitely be called the comeback year for the El Paso-based refiner -- but with reservations.

Great cash flows, but...
The biggest factor that affected revenues has been the jump in refined oil prices. This ensured that overall refinery gross margin per barrel shot up 137% to $20.30 when compared to 2010. Not surprisingly, overall revenues went up. But only just.

Fundamentally speaking, things weren't that impressive. Total throughput fell in the first nine months, and I'm expecting a similar trend in the fourth quarter as well. Total refinery production stood at 139,344 barrels per day (Bpd) -- a 32% drop from last year. The El Paso and Gallup refineries -- Western's biggest -- together accounted for a 5% drop in throughput volumes. Additionally, the combined average throughput of 141,453 Bpd is less than the maximum capacity of 151,000 Bpd. One must keep in mind that expenses incurred in running a refinery will always be for maximum capacity regardless of actual output.

Bleak future?
The company is in the process of disposing of its storage and distribution terminal in Virginia to Plains Marketing, a subsidiary of Plains Exploration and Production (NYSE: PXP  ) for $180 million. I believe this is more a matter of streamlining operations than a panic move. However, things might look positive once demand picks up.

With regard to future outlook, I'm not too pessimistic about the industry. The past few months had been tough for all major players. While Western's stock rose 30%, Sunoco (NYSE: SUN  ) , Valero Energy (NYSE: VLO  ) , and Marathon Petroleum (NYSE: MPC  ) have all lost out. But what really matters in this industry is how fast refiners can get back to their feet following a drop in throughput volumes.

Foolish bottom line
If overall prices remain high, Western should stand to gain. But that's too risky a factor to depend solely upon. To remain up to date on news and analysis on this stock, you can add Western Refining to your watchlist.

Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Western Refining. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (5)

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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.

  • Report this Comment On December 28, 2011, at 2:01 PM, ShorebreezeTerry wrote:

    Plains Marketing, L.P. is a subsidiary of Plains All American Pipeline, L.P. (PAA) and not a subsidiary of Plains Exploration and Production Company (PXP).

  • Report this Comment On December 28, 2011, at 11:43 PM, isacsimon wrote:

    ^ You got me there. Thanks for the correction. Plains Marketing is a subsidiary of Plains All American Pipeline (PAA).

    Fool on!

    -Isac

  • Report this Comment On December 29, 2011, at 12:04 PM, retrobeast wrote:

    So do you put out these articles so the stock being talked about will go down or up?

    I have been trying to sell WNR at $14 for the past few weeks and you put this article out and now it is below $13.

    Thanks Fools (no Motley intended)

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