US Independent Refiners
A Look at 3Q EPS Risks
23 August 2013 Report-170 (438.87KB)
Bottom Line: In the 3rd quarter, the global oil market has suffered a sharp
tightening. The call on OPEC spiked by over 1MBD, before we consider
more recent disruptions to Libya. A spike in crude is not normally good for
refiners. Unfortunately it occurred in one of the usual peak earnings periods
for the US refiners. 2013 was always a transition year for us. With 3Q
disrupted by this crude spike, you could categorize 2013 as a "bust". While
we'd then like to focus your attention on the good things that could happen in
2014 (e.g. continued logistics monetization, Gulf coast oversupply), the
magnitude of required cuts to 3Q consensus keeps us on the sidelines.
Oct/Nov should provide a better entry point.
VLO least at risk for numbers: If capture rates improve given wider light
heavy spreads then VLO could match consensus EPS. If we were to mark to
market today, the cuts to consensus EBITDA would be 25% for MPC, 23%
for TSO, 22% for HFC, 15% for DK, 12% for PSX, 6% for WNR and 3% for
VLO. EBITDA for ALJ and NTI would be in-line with consensus estimates.
However relative value favors WNR, TSO, MPC, PSX over VLO: The
large logistics businesses of these companies is not reflected in relative
multiples. Indeed the easiest call we can make once 3Q consensus is
behind us, is to buy PSX, given refining only accounts for c30% of value and
chemicals/midstream is doing very nicely thank you - see our report PSX –
Underestimated Logistics.
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