BUY OR SELL-Integrated oil co’s the best refining bet?

By Anna Driver

HOUSTON, April 14 (BestGrowthStock) – The global recession has
taken a heavy toll on fuel demand, hammering profit margins for
refiners, especially for those companies that are not
integrated with oil and natural gas production.

Excess refining capacity continues to dog the market.
Margins are depressed and are expected to remain weak for
years. Any uptick in margins for the independent refiners “will
be very modest over the next several years,” Barclays Capital
said in a note to clients.

But so far this year, the Standard & Poor’s index of
independent refining companies (.GSPENRM: ), which includes
Valero Energy Corp (VLO.N: ), Sunoco Inc (SUN.N: ) and Tesoro Corp
(TSO.N: ), has jumped 15 percent. By contrast, the Standard &
Poor’s index of integrated oil and gas companies (.15GSPOILI: )
is up only 3 percent but may have room to run if crude prices,
which are trading around $84 per barrel, keep climbing.


The diversification provided by the integrated oil and gas
companies — which have refining arms and exploration and
production businesses — is the best way for investors to to
ride out a bumpy refining sector, said Fred Burke, president of
Johnston Lemon Asset Management in Washington, D.C.

“We’ve always owned the integrateds, it’s the way to go and
we’ve always done it that way,” Burke said. “Someone is going
to have to do the refining. The majors are diversified, and
you’ve got to have that capability.”

Burke’s firm owns Exxon Mobil (XOM.N: ), Chevron Corp (CVX.N: )
and several thousand shares of independent refiner Valero
Energy Corp (VLO.N: ), but he said he believes that Valero’s
management is too promotional.

“I’m not a big believer in that,” Burke said. “It’s my
opinion that they toot their own horn too many times.”


“The whole sector went from brilliant to dead in a pretty
short period, and I don’t think they are going to do that well
going forward,” said Mark Coffelt, head portfolio manager and
founder of Empiric Advisors in Austin, Texas.

“You have CAFE (corporate average fuel economy) standards
going up and it also makes me nervous when you see a company
like Exxon Mobil getting rid of their gas stations.”

Another sign of market weakness, Coffelt said, was Valero’s
sale of its shuttered Delaware City, Delaware refinery. PBF
Energy Partners LP bought the plant for a rock-bottom $220
million and also received generous incentives from the state of
Delaware. [ID:nN08203264]

Stock Today

(Reporting by Anna Driver; Editing by Tim Dobbyn)

BUY OR SELL-Integrated oil co’s the best refining bet?