Frontier Oil Corporation Q2 2010 Earnings Call Transcript

Frontier Oil Corporation Q2 2010 Earnings Call Transcript
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Frontier Oil Corporation (FTO)

Q2 2010 Earnings Conference Call

August 5, 2010 11:00 AM ET

Executives

Kristine Boyd – Manager, IR

Mike Jennings – Chairman, President and CEO

Jim Stump – VP, Refining Operations

Doug Aron – EVP and CFO

Joey Purdy – VP, Refinery Supply

Bill Rigby – VP, Refinery Planning & Optimization

Nancy Zupan – VP and Chief Accounting Officer

Analysts

Edward Wesley (ph) – Credit Suisse

Paul Sherada (ph) – Bank of America

Jeff Dietert – Simmons

Ben Herr – Morgan Stanley

Paul Sankey – Deutsche Bank

Blake Fernandez – Howard Weil

Chi Chow – Macquarie Capital

Daniel Burke – Johnson Rice

Jacques Rousseau – RBC

Paul Cheng – Barclays Capital

Presentation

Operator

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Welcome to the second quarter 2010 earnings call. I will be your operator for today’s call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Kristine Boyd, Manager of Investor Relations. Kristine, you may begin.

Kristine Boyd

Good morning and thanks to all of you who are joining us this morning for our second quarter 2010 earnings call. Here with me this morning are Mike Jennings, Chairman, President, and CEO; Doug Aron, EVP and CFO; Jim Stump, VP of Refining Operations; and other members of our executive management team.

Before we get started, I would like to read our Safe Harbor statement. The primary purpose of this conference call is to describe the assets, operations and certain current and historical financial conditions associated with Frontier Oil Corporation.

This information and associated comments made during the course of this conference call may include forward-looking statements concerning the company. These may include statements of plans and objectives for future operations, statements of future economic performance or assumptions or estimates.

The accuracy of these forward-looking statements is subject to a wide range of business risks and changes in circumstances that are described in the company’s reports that are filed from time to time with the Securities and Exchange Commission. Actual results and outcomes often differ from expectations.

I would now like to turn the call over to our Chairman, President and CEO, Mike Jennings.

Mike Jennings

Good morning everyone and thank you for joining our second quarter earnings call. Frontier reported second quarter net income of $66 million, equivalent to $0.63 per share. This represents the big step forward versus our first quarter results when we reported a loss of $40 million or $0.39 a share. The second quarter earnings came from three major areas. First, we had consistent and reliable operations with high throughput rates at both refineries. Second, diesel margins strengthened significantly while gasoline margins improved seasonally. And finally, we captured considerably better crude oil economics as both contango and the WTI forward curve and wider heavy sour differentials provided favorable feedstock pricing at both of our refineries.

Refinery gross margins before operating expenses showed improvement at both the plants with El Dorado stepping up from $3.56 in the first quarter to $9.94 in the second and Cheyenne advancing from $2.61 in the first to $11.38 in the second, all on a per sales barrel basis. Production was very strong through the quarter with average total product sales of 143,500 per day in El Dorado and 51,600 per day in Cheyenne.

Both refineries lowered operating cost through the quarter and I am pleased to see that our actions to reduce costs are flowing through to our quarterly financials. Refinery operating cost per sales barrel excluding depreciation were $3.43 in El Dorado and $4.97 at Cheyenne. This Cheyenne figure does not include the benefit of an additional $4.2 million reduction in an accrual for environmental penalties.

So for the quarter, we are showing a recurring expense level at Cheyenne of less than $5 a barrel for the first time in several years. Cheyenne had a good second quarter with the best gasoline and diesels yields in its history and was continuing this performance in July. And while there is never a good time for refinery fire, the incident on July 28 was particularly difficult given the progress being made in Cheyenne prior to this. We experienced a relatively large fire though it did not involve in explosion and damage to our production equipment was moderate. Most importantly there were no injuries to our employees or contractors.

The crude unit in Cheyenne will be shut down for what we currently estimate to be two to three weeks while repairs are completed. Jim Stump will provide more details on the status of Cheyenne later in this call. And I recognize the tendency to want to connect this incident to our recent rationalization efforts in Cheyenne. However, let me assure you the cause of this fire was absolutely unrelated to our cost cutting efforts of the past year and safety remains our highest priority at both plants. We will spend what is necessary to operate our plants safely.

Turning to the third quarter operating environment, we have seen higher refinery utilization rates overall and despite improved gasoline and diesel demand, national product inventories remain on the high side. Gasoline and diesel crack spreads have come down from May June levels, though with an approximately $10.211 in the Mid-Con and somewhat higher margins in the Rockies. Refinery margins are continuing what we believe will be a slow cycle of improvement along with the overall economy.

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