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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION

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To: Dennis Roth who wrote (73)	5/8/2008 6:06:06 PM
From: Dennis Roth	Read Replies (1) of 111

Frontier Oil Corp. (FTO): Maintain Buy on valuation, favorable light-heavy spread exposure - Goldman Sachs - May 08, 2008 What's changed Frontier Oil reported breakeven 1Q2008 EPS (after adjusting for a net +$0.44/share impact from FIFO inventory gains and a hedging loss) in-line with our estimate of a loss of $0.01 though below the First Call consensus estimate of +$0.12. Total throughput of 126 Mb/d was slightly higher than our 123 Mb/d estimate, with an overall realized refining margin (excluding inventory impact) of $8.61/bbl versus our $9.16/bbl forecast. We are slightly lowering our 2Q and FY2008 EPS estimates on lower assumed throughput. Our FY2009-2012 EPS estimates are unchanged. Implications We continue to have a favorable outlook for Frontier given the company’s rising exposure to light-heavy crude oil spreads and middle distillate production, both of which should continue to help offset weak gasoline margins. We are also encouraged by the company’s continued strong project execution, as evidenced most recently by the completed capital projects at El Dorado. Despite our recently-lowered outlook for gasoline crack spreads and the refining sector more broadly, we believe the risk/reward for both Frontier as well as Valero Energy (CL Buy) is attractive at current levels. We would add to positions in both given inexpensive valuations and very bearish expectations ahead of a potential rebound in gasoline crack spreads from current depressed levels as we head into summer driving season. Valuation We see 28% upside to our unchanged, $34 12-month target price, which is based on asset value, P/E and cash flow valuation analyses. Key risks Key risk is sustained lower refining margins.

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