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.
