Sales Fell, but Gross Profit Rose for Refiners in 3Q15



Sales performance

In 3Q15, large-capped refiners Phillips 66 (PSX), Valero Energy (VLO), Delek US (DK), and Alon USA Energy (ALJ) posted a contraction in sales of 7%, 5%, 4%, and 3%, respectively, on a YoY (year-over-year) basis. However, the gross profit of these companies grew by 13%, 24%, 20.4%, and 20.5%, respectively, on a YoY basis, in 3Q15. Sales data for the top ten large-capped companies indicate that sales were flat YoY in 3Q15.

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The flat sales coincide with steady demand for refined products in transportation and other industries, as well as the fall in market prices for refined products. Again, this indicates that greater refining margins and lower operating costs (lower energy cost for refining) are the major drivers of the profitability margins of these companies.

Price performance

The downstream companies including Phillips 66 (PSX), Valero (VLO), and Tesoro (TSO) rose by an average of 20%. On the other hand, the large-capped upstream companies fell by 34% on a year-to-date basis on December 29, 2015.

PBF Energy (PBF), Tesoro (TSO), and Valero Energy (VLO) rose more than 30% on a YTD basis. On the other hand, the energy sector benchmark, the Energy Select Sector SPDR Fund (XLE), fell 24% on a YTD basis. The change in the price of downstream companies is negatively correlated to that of upstream companies.

Upstream companies that operate with a production mix of greater than 90% fell by an average of 58% on a YTD basis. This basket of upstream companies includes Vaalco Energy (EGY), Kosmos Energy (KOS), and Denbury Energy (DNR). Finally, downstream companies draw revenue from the refining and marketing of petroleum products.


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