Frontier Oil Corp.: Profit Slip Slides Away

March 4, 2009
After-tax charges and lower crude prices result in loss for Houston-based refiner.

Falling crude prices continue to drive down profits for oil refiners after much of the industry achieved record-setting earnings in the previous year. Frontier Oil Corp. is one of the latest oil producers to take a hit from plummeting crude prices. The Houston-based company said Feb. 26 it incurred a loss of $97.4 million, or 94 cents a share, compared with net income of $43.4 million, or 41 cents per share, in the year-earlier period.

Frontier Oil attributes the fourth-quarter decline to an after-tax inventory loss of $245.1 million, or $2.38 per share, partially offset by an after-tax hedging gain of $115.6 million, or $1.12 per share.

Frontier Oil Corp.
At A Glance

Frontier Oil Corp.
Houston, Texas
Primary Industry: Petroleum & Coal Products
Number of Employees: 800
2007 In Review
Revenue: $5.19 billion
Profit Margin: 9.62%
Sales Turnover: 2.78
Inventory Turnover: 9.9
Revenue Growth: 8.19%
Return On Assets: 32.75%
Return On Equity: 64.33%
The inventory loss coincides with a $60 drop in light sweet crude prices, further impacted by the companys first-in first-out (FIFO) accounting method, according to Mike Jennings, Frontiers president and CEO.

Despite the earnings loss, the company benefited from expanded capacity at its El Dorado refinery in Kansas. The facility produced record diesel yields as high as 48% of total crude charge. Diesel margins averaged $21.81 per barrel for the fourth quarter, compared with $17.51 per barrel for the same period in 2007.

Meanwhile, the light/heavy crude differential averaged $15.27 per barrel in the fourth quarter, compared with $27.96 per barrel during the year-earlier period. The West Texas Intermediate/West Texas Sour spread averaged $3.30 per barrel in the most recent quarter, compared with $6.95 per barrel in the previous year-end period.

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