Frontier Oil Corporation Q1 2010 Earnings Call Transcript

And this quarter, we received a portion of the tax refund resulting from our switch to LIFO inventory accounting and we had the remaining tax refund receivable of $131 million at quarter end. We also took steps during the first quarter to reduce expected 2010 capital spending by approximately 20% to $112 million as we chose to defer certain projects to future years.

Focusing on the Cheyenne refinery for a moment, we made good progress in the first quarter and reducing costs, improving refinery yields and advancing our LPG recovery project, which we expect to add nearly $20 million to annual refining margins.

Overall, by quarter end, we had tallied sustainable improvements in refining gross margin of approximately $1.50 a barrel. We are nearly halfway to our $3 to $4 margin improvement goal.

We also continue to see a geographic benefit of Cheyenne's location as the extended Bakken play becomes mussed and producers of sweet and intermediate sour crudes in that region look for a local market for the increasing production.

During the second quarter in Cheyenne, our activities will include additional cost reductions, logistics and supply changes related to bottom of the barrel opportunities and further work on yield improvement capital projects inside the plant.

As a general comment, I want to investors and equity analysts to clearly understand that we are leaving no stones unturned in Cheyenne and my team and I are absolutely committed to the success of this effort.

Moving to more of a macro level, gasoline demand across the country is up about 3% over last year indicating the potential for stronger driving season, while distorted demand is trending upward with some assistance from international markets. Diesel demand for over-the-road truck traffic remains fairly flat, while we expect this to pick up, though, slowly as the broader economy improves.

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