DEBORAH JIAN LEENEW YORK (AP) ¿ Shares of refining companies tumbled on Wednesday, after refiners warned of bleak second-quarter results and signaled financing troubles by offering millions in common stock and senior notes. The sector reversed gains from last week's rally, despite news that utilization rose more than expected. The Energy Department's Energy Information Administration on Wednesday reported that U.S. refineries ran at 86.3 percent of total capacity on average, an increase of 1.2 percent from the prior week. Analysts expected capacity to rise to 85.7 percent. The price of crude oil fell $1.38, or 2 percent, to $67.14 in midday trading. Crude prices have climbed steadily for several weeks, but demand for gasoline remains weak, a troubling combination for refiners who must now shell out more for higher-priced crude while so many consumers keep their cars parked. Demand for gasoline over the four weeks ended May 29 was 0.4 percent lower than a year earlier, averaging about 9.2 million barrels a day, according to the EIA report. Shares of Valero Energy Corp., the nation's largest independent oil refiner, sank $4.03, or 18 percent, to $18.36 in afternoon trading, a day after the company warned of a second-quarter loss, and said it plans to sell more than 40 million shares of common stock in a public offering.
Valero on Tuesday predicted a second-quarter loss of 50 cents per share, falling far short of the average 74-cents-per-share profit analysts predicted in a Thomson Reuters poll. Results have been hurt by downtime at two of its refineries, and lower diesel margins and sour crude oil discounts, the company said. Proceeds from Valero's offering will fund general corporate purposes and recent acquisitions, the company said. Deutsche Bank analyst Paul Sankey cut his full-year profit estimate for the company to 94 cents per share, from an earlier estimate of $2.22 per share, in response to Valero's news. Sankey warned that right now it's hard to grasp how the company's earnings will fare in the second half of the year as there is little information available on its recently acquired ethanol and European refinery businesses. Sankey rates Valero "Hold" with a $20 price target. Western Refining Inc. also warned that its second-quarter results faced pressure. On Tuesday the company said earnings before interest, taxes, depreciation and amortization would be between $43 million and $63 million, short of the $85 million predicted by analysts polled by Thomson Reuters. On Monday the company said it intends to offer 14 million shares of common stock, $100 million in convertible senior notes due 2014 and $600 million in senior notes due 2017 to pay off debt.
Underwriters will have a 30-day option to buy an additional 2.1 shares of common stock and an additional $15 million of convertible notes. Caris & Co. analyst Ann Kohler on Tuesday cast doubt on the company's ability to execute a 14 million share issuance given its second-quarter earnings shortfall, current weak market conditions and negative long-term outlook for the industry. Kohler lowered her second-quarter estimate to a loss of 8 cents per share, from earnings of 5 cents per share. Kohler reaffirmed a "Sell" rating for the company, with a price target of $7. Shares of Western Refining fell $1.86, or 15.6 percent, to $10.06. Holly Corp. on Tuesday said it plans to offer $200 million in senior notes due 2017 to fund post-closing inventory payments related to its acquisition of the Tulsa Refinery from Sunoco Inc. Shares of the company tumbled $1.89, or 7.9 percent, to $21.94 in midday trading Wednesday. Topping off the host of offerings, in an effort to pay off debt, San Antonio-based Tesoro Corp. on Tuesday offered $300 million in senior notes due 2019. Shares fell $2.70, or 15.4 percent, to $14.80 in afternoon trading.
Elsewhere in the sector Frontier Oil Corp. shares dropped $2.81, or 15.8 percent, to $15. Sunoco shares slid $2.78, or 9.2 percent, to $27.52.