Refiners are exposed to global oil demand growth, so strong absolute performance is a difficult case amid bad economic data. But, relative to the rest of energy, we believe Gulf Coast oriented refiners can continue to outperform as IMO 2020 signals clearly come through.
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Underlying figures and additional commentary inside. Overall takeaways are neutral. The modestly better than consensus crude draw we project is offset by August MTD AG-OPEC exports showing an uptick from July, and Other Swing exports which remain elevated.
CLMT reported a net loss of ($0.21) per unit, missing consensus of $0.05, but ahead of our ($0.33) estimate. The variance vs our number was primarily attributable to stronger than expected specialty margins (over $36/bbl, +4% y/y) plus some WCS hedging gains. On the cashflow side, CLMT did $55mm of FCF in 2Q (inclusive of $16MM working capital benefit). The cash generation helped the company to repurchase $67MM of its 2021 notes during the quarter, making nice progress on its deleveraging initiative.
We have reformatted and added to the Product Pulse, our Refining monthly. What’s new are commentary to exhibits, a permanent section of Octane values, and a monthly sector EPS mark-to-market. The report continues to include regional crack spreads, ClipperData refined product exports, and China National Bureau of Stats data. As a result of augmented content inside, the front page is more high-level.
Underlying figures and additional commentary inside. Overall takeaways are neutral. A bearish inventory build forecast relative to consensus and Other Swing exports remaining on the high side are offset by materially lighter AG-OPEC exports in July.
DK reported 2Q adjusted EPS of $1.17, beating our $0.89 estimate and consensus of $0.84. The beat vs our number was driven by strong refining results, particularly at Krotz Springs where the new alky unit added $15MM of contribution margin in 2Q. El Dorado margin and throughput also exceeded our expectations. This comes despite a realized Mid-Cush differential of just $1.77/bbl during the quarter. The company repurchased 1.6MM shares (~2% of outstanding) for $59MM in 2Q, though DK anticipates only $40MM of buybacks in 3Q.
Underlying figures and additional commentary inside. Overall takeaways are slightly negative. Our inventory build forecast is bearish relative to consensus and Other Swing exports remain high, though AG-OPEC exports for July MTD have dipped from the previous week and are running materially less than June.
A month ago, we argued that Midstream investments by Gulf Coast Refiners were underappreciated for their synergistic effect, potentially contributing to light/sweet crude discounts in the Gulf Coast. We argue structural light/sweet oversupply is driven by a commercial limit to export demand, as opposed to a physical constraint. Early days of Refiners’ 2Q19 earnings clarifies a key input to this point – max light crude runs at refineries are a moving target not easily predicted, because it requires a forecast of naphtha prices.
PSX’s diversified business offers myriad takeaways from quarterly calls, but in the context of a wave of recently announced projects, including today’s FID of Sweeney Frac 4, the unifying theme from our standpoint is a capex and CF profile stepping up in tandem for a true growth story. This was also clarified by 2Q results as $3.02 adj EPS beat our $2.69, with results in line at Refining and Marketing but above our estimate at Midstream and Chemicals. Results demonstrate the synergistic relationship between segments, which is enhanced by new projects.
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