Frontier Oil (FTO)

Q4 2010 Earnings Call

February 24, 2011 11:00 am ET

Executives

Nancy Zupan - Chief Accounting Officer and Vice President

James Stump -

Douglas Aron - Chief Financial Officer and Executive Vice President

Michael Jennings - Chairman, Chief Executive Officer, President and Member of Executive Committee

Kristine Boyd - Manager of Investor Relations

Joey Purdy - VP, Refinery Supply

Analysts

Gary Stromberg - Lehman Brothers

Jeffrey A. Dietert

Jeffrey Dietert - Simmons & Company

Ben Hur

Douglas Leggate - BofA Merrill Lynch

Chi Chow - Macquarie Research

Blake Fernandez - Howard Weil Incorporated

Presentation

Operator

Compare to:
Previous Statements by FTO
» Frontier Oil CEO Discusses Q3 2010 Results – Earnings Call Transcript
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» Frontier Oil Corporation Q1 2010 Earnings Call Transcript

Welcome to the Fourth Quarter 2010 Earnings Call. My name is John, and I'll be your operator for today’s call. [Operator Instructions] I will now turn the call over to Ms. Kristine Boyd, Director of Investor Relations. Ms. Boyd, you may begin.

Kristine Boyd

Thanks, John. Good morning, and thanks to all of you who are joining us this morning for our fourth quarter 2010 earnings call. On the call 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. Please note, our call today does not constitute and offer to buy or sell any securities related to our recently announced merger with Holly Corporation. All solicitations to buy or sell securities and to secure shareholder proxy votes will be made under current SEC rules and regulations. I would now like to turn the call over to our Chairman, President and CEO, Mike Jennings.

Michael Jennings

Thank you, Kristine. Good morning. Thanks for joining us today. This morning, Frontier reported $4 million in net income or $0.03 per diluted share during the fourth quarter of 2010, compared to our 2009 fourth quarter loss of $75 million or negative $0.72 per share. Results for the most recent quarter included an after-tax inventory hedging loss of $10 million or $0.09 per share, compared to an after-tax inventory hedging loss of $5 million or $0.05 per share for the fourth quarter of 2009.

The year-over-year improvement in fourth quarter results was due to increases in each of the major contributors to refining profitability. Domestic diesel demands continued its steady increase, boosted by export opportunities in the global markets, and it ended the year about 3.5% up from 2009. Frontier's average diesel crack spread increased by more than $8 over the fourth quarter of 2009 to $15.21 per barrel in the most recent quarter. Gasoline demand improved through 2010, though to a lesser degree, at about 0.50% over 2009, and Frontier's average gas crack increased to $5.65 per barrel in the fourth quarter of 2010, up from $4.40 in the same period of 2009.

Crude differentials have also been a meaningful part of the economic recovery story over the past year, particularly for complex refiners such as Frontier. Our average light/heavy differential almost doubled to $14.86 per barrel in the most recent quarter compared to $7.71 per barrel in the fourth quarter of 2009, while the average sweet/sour differential increased modestly to $2.58 per barrel in the most recent quarter, up from $2.27 in the same period of 2009. The net effect of these improvements in crack spreads and crude diffs was a notable improvement in our gross refining margins of $7.52 per barrel in the fourth quarter of 2010, compared to $1.55 per barrel in the same period of 2009. We also lowered refinery operating costs by about $5 million in the fourth quarter of 2010 versus the fourth quarter of the prior year; on a per barrel basis, $4.18, down from $5.90.

In December, the El Dorado Refinery completed its Gofiner project, a gasoil hydrotreater intended principally for gasoline sulfur compliance, but with the added benefit of improving the effective capacity of our cat cracker and gaining higher light product yields through feedstock improvement. Jim Stump will have more on this later in the call.

I'd like to revisit for a moment the two demand numbers for 2010 that I mentioned previously: 3.5% and 1.5% growth for distillate and gasoline, respectively. These statistics represent what most of us in the refining industry have been forecasting since 2009 when the catchphrase among refiners and analysts became one of cautious optimism for 2010. And the year was just that, a slow but upward trending improvement in demand and year results that, for most of us in the business, were not spectacular but certainly better than 2009. From my perspective, the demand outlook continues to be one of a gradual recovery for refined product demand over the next few years, with distillate leading the way as a global product and gasoline trending upward with domestic employment and improvements in the U.S. economy.

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