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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jurgis Bekepuris who wrote (41935)	3/24/2011 2:32:45 PM
From: ValueGuy	Read Replies (4) \| Respond to of 78731

RE: Refining...I don't pretend to understand it, but I know that it is a valuable part of the process to refine crude oil and turn it into gasoline, kerosene and napthta for example. Whilst researching on refining, found this webpage, which gives a good argument about the value of refining companies, and details what they call the 3-2-1 crack spread. Basically the larger the spread, the more profit the refiner makes. investingdaily.com One interesting fact is that MRO will spin off its refining business, and this new company will be known as Marathon Petroleum Corp (MPC) and the spin off will be completed on 30 June 2011 (1 MPC share will be received for each 2 MRO shares held). From what I've read, spin-offs are usually unprofitable parts of the businesses, but are usually much smaller than the company that has spun it off. Therefore, institutional investors will dump it like so much bad trash as it does not fit into their investment guidelines. However, looking at the Q3 2010 numbers, the E&P side of MRO generated 2.53bn in revenue, and made about 510m profit. But the refining and marketing part of the business had revenue of 15.18bn (i.e. 85% of the MRO business as pointed out by you), and profit of 285m. So I don't know which stock would go down in price in this case. If it was a good deal, was thinking of buying up some MPC stock but don't know now. Another thing I picked up from that website was that the crack spreads tend to be larger for lower grade crude oil. Sour and heavy oil, say, from compared to the sweet and light variant from WTI. But only certain refineries are capable of this (from MRO's 10K, they have 6 refineries, of which 5 can refine sweet and sour crude oil). Refineries situated on the west coast tend to have better spreads when compared to refineries in the east. Refineries situated on the gulf coast and central USA do not do too badly also as there is a large reserve of crude in Oklahoma which can be transported easily to these refineries. One company that looks like good value is Tesoro Corp (TSO), a refiner that has refineries situated primarily on the west coast. www.businessweek.com/news/2011-02-22/record-glut-of-oil-refineries-selling-at-80-discount-real-m-a.html www.tsocorp.com. RE: GLPW, yeah it does seem bizarre that everything is dropping...and there is definitely too much concentration with regard to the number of customers that they have...have to look at their 10k again but definitely won't be able to look at it today