Refining and Marketing (R&M)

The Company’s refining and marketing earnings from continuing operations were $76.3 million in the first six months of 2012, compared to earnings of $60.4 million in the same 2011 period. R&M profit in the U.S. was $66.1 million in the first six months of 2012, down from $84.9 million in the 2011 period. The 2012 earnings reduction was primarily attributable to weaker U.S. retail marketing margins, which averaged $0.137 per gallon in the 2012 six-month period compared to $0.146 per gallon in the 2011 six months. Fuel sales per store month in 2012 were 4.5% lower than in 2011, while merchandise sales per store and merchandise margin as a percent of sales were about flat in 2012 compared to 2011. Ethanol margins were lower in 2012 than in 2011 as average ethanol prices declined more than corn prices in the current year.

R&M operations in the U.K. in the six-month 2012 period generated a profit of $10.2 million compared to a loss of $24.5 million in the prior year, as the business experienced improved margins for both the Milford Haven, Wales, refinery and marketing operations in the current period. U.K. unit margins averaged a positive $1.03 per barrel in the first six months of 2012 compared to a negative margin of $1.22 per barrel in the 2011 period.


Corporate after-tax costs were $42.5 million in the first six months of 2012 compared to after-tax costs of $45.6 million in the 2011 period. The reduction in net costs was primarily attributable to lower net interest expense in 2012 compared to 2011 caused by a higher proportion of financing costs being capitalized to ongoing oil and natural gas development projects in the current period. The 2012 results included a $9.1 million after-tax gain on transactions denominated in foreign currencies compared to an after-tax gain of $3.9 million in 2011. Administrative expenses associated with corporate activities were higher in the 2012 period compared to the prior year due to additional costs for employee compensation and professional fees.

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