A Refiner Wins Again (HOC, ATN, KEG, ATLS)

Holly Corporation (NYSE:HOC) this morning reported EPS of $0.44 on first quarter 2009 revenue of $650.8 million. Analysts had expected EPS of $0.30 on revenuesof $590.48 million. For the same period last year, Holly reported EPS of $0.17 on revenues of $1.48 billion. That’s the refining story for this quarter — margins up, throughput down, revenues down. It all adds up to a solid quarterly report.

No so lucky are the E&P players. Natural gas producer Atlas Energy Resources, LLC (NYSE:ATN) reported earnings per common unit of $0.52 on revenue of $197.86 million. Analysts had been expecting earnings per common unit of $0.44 on revenues of $203.5 million. That’s not so bad and not the worst news from Atlas. The company suspended its quarterly distribution in connection with its pending merger with a new unit of Atlas America, Inc. (NASDAQ:ATLS), which owns 48% of Atlas Energy’s common units and all its management distribution rights. Distributions will not resume until the merger is completed.

In the oilfield services sector, Key Energy Services, Inc. (NYSE:KEG) reported EPS of $0.01 on $332 million in revenue. Analysts’ expectations were for EPS of $0.03 on $362.05 in revenue. The company’s chairman and CEO noted that the decline in onshore drilling and workovers is continuing in April, with a drop in rig hours of 8% compared with March. He also said the company had seen “some early signs of improvement” in the Permian Basin and the Mid-Continent, and he believes that “our core customer base will soon begin to increase maintenance driven investment.”

The recovery in refining margins is the big news for the first quarter. As long as crude oil prices stay in the $50-$60/barrel range, refiners can run at higher margins and make more money even though the market for gasoline is still soft. The end of this May marks the beginning of the summer driving season, and demand should rise for gasoline, moving the margins even higher. Crude inventories can be run down at even better margins because the crude was purchased at lower prices and the refined products will sell at the new, higher prices. It’s a refiner’s dream scenario.

Services companies will still face challenges, given the overall decline in rig counts and capital spending from the E&P companies. Natural gas producers, like Atlas Energy, face really low prices, but the summer cooling season may turn that around some as well.

So far in the pre-market this morning, Key Energy is off more than 7%, at $5.00/share, down $0.39. The company’s 52-week trading range is $2.12-$20.09. Atlas Energy is up about 1%, to $19.94/common unit. It’s trading range for the past 52-weeks is $7.97-$45.40. Finally, Holly is up more than 6%, to $27.45/share. It’s 52-week range is $10.84-$48.61.

Paul Ausick
May 7, 2009