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Topic: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-04 03:22:43 and read 21338 times.

According to this article, DL's last year "genius" move to buy an oil refinery in Pennsylvania may not have been so brilliant after all. It incurred heavy losses in Q4 2012, and the prospects, according to this analysis, are not particularly good for 2013 either. Interestingly, John Ruggles, who engineered the purchase, left DL abruptly at the end of 2012.

http://seekingalpha.com/article/1152...the-math-doesn-t-work?source=yahoo

Topic: RE: DL Losing Money In Refinery
Username: Deltal1011man
Posted 2013-02-04 03:47:26 and read 21261 times.

Quoting UALWN (Thread starter):
It incurred heavy losses in Q4 2012,

               so did ever single hub in the NE. maybe DL should dump its JFK/LGA hubs too.  


come on, i guess we didnt hear about Sandy

Topic: RE: DL Losing Money In Refinery
Username: toobz
Posted 2013-02-04 04:09:07 and read 21103 times.

I don't think DL ever expected to be making money off of it yet. It's a long term investment..not a get rich over night scheme. Give it time.

Topic: RE: DL Losing Money In Refinery
Username: Tdan
Posted 2013-02-04 04:15:23 and read 21060 times.

Quoting Deltal1011man (Reply 1):
so did ever single hub in the NE. maybe DL should dump its JFK/LGA hubs too.


come on, i guess we didnt hear about Sandy

That's not referring to airline hubs, but to the refinery. Sandy had a material effect, but that is not the point of the analysis. The point is that the investment seems to be short-sighted and will not produce the intended results - that is to act as a fuel hedge.

This entire deal reminds me of Liar's Poker where the bankers would "blow up" customers by unloading some toxic assets either to force them out of the market or to help another, more lucrative deal go through. It seems like the latter could have happened here as Trainer was dead-weight on Phillips 66 and needed to be sold off in order for ConocoPhillips to achieve more value (and thus a higher banking commission) for the transaction. Additionally, a commission was earned on the sale to DL.

This is definitely an opinion article, but it is backed up by some interesting analysis. I'm curious to see how it all plays out, but I have been very bearish on this deal from the very beginning. Ruggles departure is very telling...

Topic: RE: DL Losing Money In Refinery
Username: bongodog1964
Posted 2013-02-04 04:18:06 and read 21029 times.

Quoting Deltal1011man (Reply 1):
Quoting UALWN (Thread starter):
It incurred heavy losses in Q4 2012,

so did ever single hub in the NE. maybe DL should dump its JFK/LGA hubs too.

The thread isn't talking about losses from flying activities, its specifically about losses from the recently purchased refinery. It appears that the physical set up of the refinery results in it requiring African crude oil, that sells at quite a premium to Brent crude. This then pushes up expenditure and results in an operating loss.

Looks like DL bought a pup.

Traditionally major airlines haven't even been very good at running aircraft profitably, can't quite work out why they thought they could run a refinery successfully.

Topic: RE: DL Losing Money In Refinery
Username: SYDSpotter
Posted 2013-02-04 04:29:03 and read 20946 times.

Quoting bongodog1964 (Reply 4):
Traditionally major airlines haven't even been very good at running aircraft profitably, can't quite work out why they thought they could run a refinery successfully.

This move by DL always seemed puzzling to me. The message that DL was effectively sending to the market was that by investing in oil/refinery, it would generate a greater return (in the form of lower fuel expenses) than investing in their core business (i.e. running an airline, flying planes etc - higher revenues). If the shareholders of DL wanted to invest in oil, they would invest in an oil company not get DL to do it.

There are better ways to mitigate fuel prices such entering into hedges and even though they are susceptible to fluctuations, but at least you need to outlay $millions buying an oil refinery!!

[Edited 2013-02-04 04:31:57]

Topic: RE: DL Losing Money In Refinery
Username: Wisdom
Posted 2013-02-04 04:47:53 and read 20806 times.

It doesn't matter that the refinery isn't making money.
About 50% of crude can be processed into kerosine, with the rest processed as other products.

If the refinery sells the kerosine to Delta at less than market price, there is your margin for Delta.

The higher oil price of the oil that the plant can process is offset by the lower cost of processing it. Cheaper Brent costs more to process. I don't regard this as a hedging. Strictly speaking, DL cut one of the middle men. That's all.

Topic: RE: DL Losing Money In Refinery
Username: Deltal1011man
Posted 2013-02-04 05:12:38 and read 20630 times.

Quoting Tdan (Reply 3):
That's not referring to airline hubs, but to the refinery.
Quoting bongodog1964 (Reply 4):

you guys missed my point.

The refinery lost money in Q4 due to Sandy, this was made very clear on the investor call. What i was saying if the refinery is a failure because of the Q4 loss then so is every airline hub in the NE because they all lost money during the storm.

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-04 05:22:15 and read 20557 times.

Quoting Deltal1011man (Reply 7):
The refinery lost money in Q4 due to Sandy

The article adresses this point, and concludes that, with or without Sandy, DL's business model with respect to the refinery is flawed.

Topic: RE: DL Losing Money In Refinery
Username: NYCAdvantage
Posted 2013-02-04 05:34:38 and read 20468 times.

Quoting Wisdom (Reply 6):

Add to that the closure of Hess port reading refinery, and you will tell me how much more Delta is going to save,
I still believe DL is going to save money from thei refinery deal.

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-04 05:49:46 and read 20381 times.

Delta, a public company with gargantuan disclosure obligations, has just said it expects to make $280 million this year in savings by owning the refinery.

I would put much more stock in that than some dude who is just dying to say "I told you so".

Topic: RE: DL Losing Money In Refinery
Username: PSU.DTW.SCE
Posted 2013-02-04 06:01:45 and read 20272 times.

I don't see a whole lot of detailed analysis in that opinion piece that would give me much insight either way of what to expect from DL's Trainer facility.

Yes, DL charged a $100 M loss in Q4 due to Hurricane Sandy ($63 M related to Trainer and reduced capacity).

However, all this article seems to do is try to pull in a lot of macro-economic conditions that could vary one way or another.

The real test will be see what DL says about the full year 2013 performance of Trainer, after at the begininng of the year stating the expect to make $280 M from its operation. 90 performance, especially during start-up and the impact of natural disasters is too short to cast judgement.

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-04 06:06:26 and read 20208 times.

An important premise of the article is that to import North Dakota crude oil will "add $22 per barrel in transportation cost" to the very-low-cost of that oil, which has the benefit of being very light and sweet, i.e. easy to process.

An article in Reuters estimates the cost to rail ship that oil as actually being about $12 more per bbl than current oil from Nigeria.

The $10 difference in transportation cost estimated by the article as compared to the Reuters (and Delta) estimate is probably a significant source of the different overall estimates.

And remember, if the REFINERY SUBSIDIARY loses money, this isn't necessarily a loss for Delta on its overall plan, which is for the airline subsidiary to save almost $300 million in the price it pays whatever supplier(s) for aviation fuel.

Topic: RE: DL Losing Money In Refinery
Username: Triple7Lr
Posted 2013-02-04 06:07:31 and read 20201 times.

Quoting PSU.DTW.SCE (Reply 11):

Ditto. And if they can't generate a profit or savings from the refinery soon I hope they can swallow their pride and cut their losses.

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-04 06:20:06 and read 20072 times.

Totally disagree on need to create a profit "soon". This is a long-term play, with an absurdly-quick anticipated payback timetable. Most desireable capital projects look at a 5-6 year window for recovery of investment. This one was expected to be six months, which was why it was a no-brainer, once risks were controlled. That gives them a lot of time to tweak the process to get it right. Heck, in a couple of years they could be piping in nearby fracked Pennsylvania or New Jersey oil.

Topic: RE: DL Losing Money In Refinery
Username: b2319
Posted 2013-02-04 06:23:50 and read 20050 times.

Quoting PSU.DTW.SCE (Reply 11):
However, all this article seems to do is try to pull in a lot of macro-economic conditions that could vary one way or another.

A very important point; well made.

Not quite my industry, but close. I've considerable experience in the purified terephtalic acid (PTA) industry. (Not my core industry, though).

On a PTA job, working with Sinochem, the debate whether to start up the plant, or not, was a daily discussion. All those 'ex- pat' costs for the start up were irrelevant if you could blend an extra 1% of p-xylene (feedstock to PTA) into gasoline at the time; makes our costs trivial. Hence, for my CV, an 'enforced' spell at Liaoyang, Liaoning, doing, erm 'nothing'!

However, I wish Delta the best with this, providing they've kept the manufacturing and supply experience, T&Cs, etc.....

In plain English, it's a rather sophisticated version of 'hedging your bets'.

Let's wait and see what happens.

Cheers

B-2319

Topic: RE: DL Losing Money In Refinery
Username: enilria
Posted 2013-02-04 06:30:36 and read 19972 times.

Quoting PSU.DTW.SCE (Reply 11):

I don't see a whole lot of detailed analysis in that opinion piece that would give me much insight either way of what to expect from DL's Trainer facility.

Ruggles leaving is a big deal. I had not heard that. Whether he quit or was fired is irrelevant. This was his baby and without him leading it, I question whether there is anybody else at Delta with the expertise necessary to manage it. Many may think he screwed up buying it, but he was also the guy charged with the hedging program that access to this plant was supposed to add value to. Regardless, some or all of the value of this unique hedging strategy has been nullified.

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-04 06:32:25 and read 19953 times.

Quoting bongodog1964 (Reply 4):
Traditionally major airlines haven't even been very good at running aircraft profitably

If they weren't profitable, how would they ever become 'major airlines'? FYI, Delta made $1.6B profit last year. How did your favorite airline fare? Delta isn't 'running the refinery', Monroe is. Am I to respect a journalist that relies on 'rumor' and thrice incorrectly spells the name of the company in question? Even a quick glance at Wikipedia shows it to be spelled 'Delta Air Lines'. Any journalist worth his salt should AT LEAST correctly spell the name of the name of the company he's writing about. Leads me to conclude that the journalist's research is flawed (or at least lazy) and, by extension, so is the article. Let's revisit this thread in a year and see who says 'I told you so'. I'm confident that Delta knows what it's doing.

Topic: RE: DL Losing Money In Refinery
Username: PSU.DTW.SCE
Posted 2013-02-04 06:33:52 and read 19955 times.

Quoting enilria (Reply 16):
Ruggles leaving is a big deal. I had not heard that. Whether he quit or was fired is irrelevant. This was his baby and without him leading it, I question whether there is anybody else at Delta with the expertise necessary to manage it.

Agreed. The fact that he departed, lends itself to many questions and doesn't help to quell any speculation.

Topic: RE: DL Losing Money In Refinery
Username: commavia
Posted 2013-02-04 06:34:14 and read 19954 times.

First, this isn't an article - it's essentially an editorial. Second, while I myself have doubts about Delta's oil refinery strategy, I still think it's too early to fairly assess it as either a success or failure.

Topic: RE: DL Losing Money In Refinery
Username: enilria
Posted 2013-02-04 06:41:06 and read 19879 times.

Quoting PSU.DTW.SCE (Reply 18):
Quoting enilria (Reply 16):
Ruggles leaving is a big deal. I had not heard that. Whether he quit or was fired is irrelevant. This was his baby and without him leading it, I question whether there is anybody else at Delta with the expertise necessary to manage it.

Agreed. The fact that he departed, lends itself to many questions and doesn't help to quell any speculation.

Was he replaced yet? I hadn't seen anything on this. If they don't go out and get another oil and gas heavyweight from Wall Street or a major oil company, I suspect Trainer's days are numbered.

To further add to that, knowing what I know of the corporate world...if they put another high profile advocate in place for Trainer it has a chance of going forward, otherwise what will happen is that nobody will want to advocate for this thing and risk their own career when it is already tied to a departed exec who it is far easier to simply blame in his absence. The execs need to step up and put another strong advocate in place if they don't want it to wither and die.

[Edited 2013-02-04 06:44:30]

Topic: RE: DL Losing Money In Refinery
Username: txjim
Posted 2013-02-04 06:41:15 and read 19880 times.

Delta bought the refinery because the "crack spread" (profit margin per barrel of oil) had reached an all-time high. http://en.wikipedia.org/wiki/Crack_spread

I seem to remember that it had reached $17 when the decision was made. It averaged less than $5 prior to 2000, started rising in 2002 and is skyrocketing for gulf coast refineries. Appears to be in the $25 range now.

source for historic numbers: http://allenergyconsulting.com/blog/...refining-margin-outlook-sept-2012/
Source for current WTI: http://www.bloomberg.com/quote/CRKS321C:IND

This is what Delta is attempting to control and it does seem to make sense.

Topic: RE: DL Losing Money In Refinery
Username: Deltal1011man
Posted 2013-02-04 06:54:56 and read 19723 times.

Quoting UALWN (Reply 8):
The article adresses this point, and concludes that, with or without Sandy, DL's business model with respect to the refinery is flawed.

Not really. It does nothing but guess with a tons of ifs and maybes.

Quoting txjim (Reply 21):
This is what Delta is attempting to control and it does seem to make sense.

pretty much

Topic: RE: DL Losing Money In Refinery
Username: CentralMa
Posted 2013-02-04 06:57:00 and read 19684 times.

I can't speak at all to the way the refinery is engineered, or to transportation costs, or any oil industry specific detail.

But there CAN be real advantages (tax and investment-wise) to having a subsidiary being a supplier (or consumer, for that matter). Effectively, the owner can manage where expense to the owner goes and what revenue goes to the subsidiary...and the timing. Even when it it is all rolled up into consolidated statements and such transfers wash out...

My point is only that there is much more to the equation than just profit or loss at a subsidiary alone in both good and bad years.

(Although an engineer, I have long-time service on a Board of Directors for a $20M company where there are numerous subsidiaries, both wholly and partially owned...both arms length and non-arms length transactions...by no means an expert, but do have some direct experience.)

Topic: RE: DL Losing Money In Refinery
Username: Md88Captain
Posted 2013-02-04 07:08:27 and read 19475 times.

The water cooler talk is that DAL is very happy with the refinery deal. It is turning out to be better than expected and is on it's way to being an innovative home run.

Topic: RE: DL Losing Money In Refinery
Username: Flighty
Posted 2013-02-04 07:29:30 and read 19568 times.

While in general, I don't feel that airlines fuel hedging has much if any merit (and such hedging is often misnamed; always buying forwards is not a hedge), I did think this refinery promised to drive the local price down.

Some believed the acquisition was more about the pipelines and ability to cross-shop deliveries. DL was entering the oil distribution business, in effect, to avoid being stolen from by that business. It was a cool idea. Nobody expected them to buy that mothballed facility. I thought it was very clever. But, what if the pipelines need billions of dollars in repairs... hopefully they can avoid being killed in a business they probably do not understand.

Topic: RE: DL Losing Money In Refinery
Username: enilria
Posted 2013-02-04 07:32:47 and read 19487 times.

Quoting Md88Captain (Reply 24):
The water cooler talk is that DAL is very happy with the refinery deal. It is turning out to be better than expected and is on it's way to being an innovative home run.

As I said, the fact the leader of the program is gone is bad either because he was fired because it wasn't going well or he left because he was on a career high. Either way it is now rudderless unless they put another knowledgeable person in the spot. The fact they didn't mention his departure on the quarterly call speaks volumes.

Topic: RE: DL Losing Money In Refinery
Username: STT757
Posted 2013-02-04 07:39:58 and read 19601 times.

The refinery business is in a major transformation, dozens are closing because they are unprofitable.

Hess is closing their joint Venezuelan refinery in St.Croix:

http://www.hovensa.com/

Hess is also closing their Port Reading NJ refinery:

http://www.nj.com/business/index.ssf...losure_of_hess_port_reading_r.html

The former Chevron Refinery in Perth Amboy is getting a new owener, Buckeye, who is investing $200 million to expand it's production. Buckeye is betting big on being able to process oil from Bakken fields. There's a quote about DL's operation:

Quote:
High crude prices in the Northeast had prompted recent refinery sales including that of Philadelphia-area facility Trainer bought by Delta Airlines. Some analysts said unless it imported cheaper oil by train or boat, Delta would be hard pressed to make money.

Apparently Buckeye has some "unidentified" customers lined up, they mentioned jetfuel:

Quote:
But now Buckeye is exploring the option of importing Bakken crude by train at the behest of several unidentified customers.

The company’s management is keeping an eye on the jet fuel market as it also considers expanding pipelines to John F. Kennedy International Airport in the future, according to an investor presentation this spring.
http://www.nj.com/business/index.ssf...erth_amboy_refinery_to_get_ne.html

Topic: RE: DL Losing Money In Refinery
Username: panamair
Posted 2013-02-04 07:51:19 and read 19420 times.

Quoting enilria (Reply 26):
. Either way it is now rudderless unless they put another knowledgeable person in the spot. The fact they didn't mention his departure on the quarterly call speaks volumes.

On the same call, Richard Anderson was asked if he had any regrets about the Trainer transaction (given the Sandy-related loss):

Linda Loyd - Philadelphia Inquirer: So you are still very satisfied with your business decision to buy a refinery?

Richard H. Anderson - CEO: More – actually – since we have actually closed on the refinery and spent a lot of time in the turnaround process, we have become more certain of how prudent that investment is for our Company.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-04 08:24:04 and read 18749 times.

Quoting Wisdom (Reply 6):
It doesn't matter that the refinery isn't making money.
About 50% of crude can be processed into kerosine, with the rest processed as other products.

If the refinery sells the kerosine to Delta at less than market price, there is your margin for Delta.

Sorry, you can't reduce fuel cost by running a money losing refinery. The only way you can make money in this deal is for the refinery to operate profitably by selling refined products at market prices. Simply owning a refinery doesn't achieve anything.

The challenge is how to transform the Trainer operation into a profitable business. Conoco, with 100 years of experience in the refining business, couldn't figure out how to do so. I don't see any evidence that Delta has any special skill that will allow them to operate this business profitably.

Topic: RE: DL Losing Money In Refinery
Username: DeltaMD90
Posted 2013-02-04 08:39:10 and read 18455 times.

Wow, it isn't immediately making money, let's shut it down. Look at the money pit Virgin America, that abomination is still flying. Maybe not the best example, but my point is I don't know if DL will make money on it or not, it may be a big flop like a lot of other things DL did in the past, but it's pretty soon to be freaking out about a loss... I never thought it would be an instant profit or everyone would be doing it. If it does indeed make money, it'll be years down the road

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-04 08:45:45 and read 18323 times.

Quoting mcg (Reply 29):
I don't see any evidence that Delta has any special skill that will allow them to operate this business profitably.

Again....Delta isn't running this business, Monroe Energy is. A lot of people seen to want to ignore that fact.

Topic: RE: DL Losing Money In Refinery
Username: MaverickM11
Posted 2013-02-04 08:51:34 and read 18226 times.

Quoting mcg (Reply 29):
Sorry, you can't reduce fuel cost by running a money losing refinery. The only way you can make money in this deal is for the refinery to operate profitably by selling refined products at market prices. Simply owning a refinery doesn't achieve anything.

   I just don't get how this is supposed to work. Monroe could sell the oil to DL for free and DL would look great while Monroe was losing its shirt, *minus* the cost of the refinery. Or Monroe could sell it to DL at market rates and DL would be no better off, but again minus the cost of the refinery.

Quoting rwy04lga (Reply 31):
Again....Delta isn't running this business, Monroe Energy is. A lot of people seen to want to ignore that fact.

...a wholly owned subsidiary of DL.

Topic: RE: DL Losing Money In Refinery
Username: Tan Flyr
Posted 2013-02-04 08:53:08 and read 18146 times.

There have bbeen several articles in business publications about the changes coming to east cast refiners (the ones that are left) . Crudes from Bakken and Canada are making thier way, or will be in greater volume within a year. There are projects to convert underused Natural gas lines across Ohio and PA to carry crude oil from other mis-west pipeline conncections to the Philly area. Local Shale gas is quickly replacing the need to "import" gas from Texas and Louisiana.

Addittionally, BNSF and other railroads are taking a big page from the past, and are transporting hundreds of thousands of barrels each week by rail. The FOB price of the surging North Dakota and Canadian production has declined (to attract buyers that can transport it) to the point where it IS economical to transport by rail, just as America did prior to WWII.

A pipleine called " The Big Inch" was the first to bring Texas crude to PA/ NJ to avoid the tankers being sunk by German U boats in 1943 as I recall being told.

In another year, the PA And NJ refineries will findthemselves refining mostly US / Canadian crude, and will no longer be subject to the Brent pricing on Nigerian and Gaboneese Crudes.

Long term DL made the right move

Topic: RE: DL Losing Money In Refinery
Username: hoMsar
Posted 2013-02-04 08:59:29 and read 18027 times.

Quoting Wisdom (Reply 6):
If the refinery sells the kerosine to Delta at less than market price, there is your margin for Delta.

But that comes at an opportunity cost. The opportunity cost is selling that same kerosene at market rates (whether to Delta, or to some other company, and thus taking in a bunch of money, some of which could go to offset Delta's market-rate fuel purchases).

If I plant an apple tree because I don't want to pay the grocery store to buy apples, I'll certainly cut down on my grocery bill. But if I could sell those apples (rather than eating them myself) for a higher price than I could buy apples from the store, then I'd actually be better off doing so. If I could sell apples from my tree for the same price that I could buy them from the store, then it doesn't really make a difference if I eat my own apples or buy them from the store while selling the ones I grow.

Quoting wjcandee (Reply 12):
And remember, if the REFINERY SUBSIDIARY loses money, this isn't necessarily a loss for Delta on its overall plan, which is for the airline subsidiary to save almost $300 million in the price it pays whatever supplier(s) for aviation fuel.

It depends on whether the losses (if there are any) from the refinery exceed the savings to Delta's fuel bill. If the refinery loses $1 but Delta saves $2 on fuel costs, then they come out ahead. If it loses $2 to save Delta $1, they are behind on the deal.

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-04 09:00:32 and read 18020 times.

Quoting MaverickM11 (Reply 32):
Quoting rwy04lga (Reply 31):
Again....Delta isn't running this business, Monroe Energy is. A lot of people seen to want to ignore that fact.

...a wholly owned subsidiary of DL.

They're not RUNNING(operating) it. You know that, you're just being difficult. Ownership is irrelevant. C'mon, someone as smart as you can easily figure that out, you just don't want to admit it.

Topic: RE: DL Losing Money In Refinery
Username: EricR
Posted 2013-02-04 09:04:05 and read 17926 times.

Quoting Md88Captain (Reply 24):
The water cooler talk is that DAL is very happy with the refinery deal. It is turning out to be better than expected and is on it's way to being an innovative home run.



  Until they sell it and inform everyone of what a bad idea it was.

Quoting STT757 (Reply 27):
The refinery business is in a major transformation, dozens are closing because they are unprofitable.


Margins on refineries are very thin (low single digits) and new refineries are rarely built. The last complex refinery was built in 1977. The last simple refinery was built in 2008 and prior to this time, the last simple refinery was built in 1997.

The lack of new refineries built over the past 20 years should have been an indication to DL that the refining business was a challenging business to operate.

Conoco did a brilliant job of selling the refinery to DL during a time of high fuel prices, thus reinforcing the false concept that purchasing a refinery would be financially beneficial to DL.

http://www.eia.gov/tools/faqs/faq.cfm?id=29&t=6

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-04 09:04:37 and read 17919 times.

Quoting hoMsar (Reply 34):
But if I could sell those apples (rather than eating them myself) for a higher price than I could buy apples from the store, then I'd actually be better off doing so.

No, you'd buy the apples at the store for a lower price and resell them at a higher price.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-04 09:06:00 and read 17947 times.

Quoting hoMsar (Reply 34):
If I plant an apple tree because I don't want to pay the grocery store to buy apples, I'll certainly cut down on my grocery bill. But if I could sell those apples (rather than eating them myself) for a higher price than I could buy apples from the store, then I'd actually be better off doing so. If I could sell apples from my tree for the same price that I could buy them from the store, then it doesn't really make a difference if I eat my own apples or buy them from the store while selling the ones I grow.

Exactly, well put, thank you.

Quoting rwy04lga (Reply 31):
Quoting mcg (Reply 29):
I don't see any evidence that Delta has any special skill that will allow them to operate this business profitably.

Again....Delta isn't running this business, Monroe Energy is. A lot of people seen to want to ignore that fact.

Delta owns Monroe. Monroe is Delta.

Topic: RE: DL Losing Money In Refinery
Username: LAXdude1023
Posted 2013-02-04 09:09:49 and read 17842 times.

I think its way too soon to say if the refinery was a bad move or a good one. Its a long term investment and it wont be clear for another few years.

Topic: RE: DL Losing Money In Refinery
Username: MaverickM11
Posted 2013-02-04 09:14:42 and read 17785 times.

Quoting EricR (Reply 36):
Conoco did a brilliant job of selling the refinery to DL during a time of high fuel prices, thus reinforcing the false concept that purchasing a refinery would be financially beneficial to DL.

Has Conoco said anything about the deal? Kinda like how US said they were hundreds of millions of dollars better off w/o LGA ?

Quoting rwy04lga (Reply 35):

They're not RUNNING(operating) it. You know that, you're just being difficult. Ownership is irrelevant. C'mon, someone as smart as you can easily figure that out, you just don't want to admit it.

How is that different? Monroe's bottom line is DL's bottom line.

Quoting LAXdude1023 (Reply 39):
I think its way too soon to say if the refinery was a bad move or a good one.

I agree. I just don't understand how this isn't simply money from DL's left hand to its right and calling it a gain.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-04 09:20:52 and read 17619 times.

Quoting wjcandee (Reply 10):
I would put much more stock in that than some dude who is just dying to say "I told you so".

There seems to be a few of those, right here on this thread.

Quoting rwy04lga (Reply 31):
Again....Delta isn't running this business, Monroe Energy is. A lot of people seen to want to ignore that fact.

Conveniently




Unless I'm mistaken, I thought the point of the whole thing was for Trainer to produce jet fuel for DL's OWN operation at a lower price or, at least, with lower costs.

I also understood that DL was going to start bringing in oil from North Dakota instead of using the African crude, thereby making the operation less reliant on foreign oil.

Quoting SYDSpotter (Reply 5):
This move by DL always seemed puzzling to me. The message that DL was effectively sending to the market was that by investing in oil/refinery, it would generate a greater return (in the form of lower fuel expenses) than investing in their core business (i.e. running an airline, flying planes etc - higher revenues). If the shareholders of DL wanted to invest in oil, they would invest in an oil company not get DL to do it.

Do you not think that investing in fuel, whether by supply or refining, is not "investing in the company"? It may not be the "core" business, but it certainly is DL's highest expense, nowadays. This was "out of the box" thinking, so perhaps, long held beliefs in acquisition, manufacturing, etc. of your fuel don't apply, anymore.

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-04 09:34:15 and read 17353 times.

Quoting hoMsar (Reply 34):
If I plant an apple tree because I don't want to pay the grocery store to buy apples, I'll certainly cut down on my grocery bill. But if I could sell those apples (rather than eating them myself) for a higher price than I could buy apples from the store, then I'd actually be better off doing so. If I could sell apples from my tree for the same price that I could buy them from the store, then it doesn't really make a difference if I eat my own apples or buy them from the store while selling the ones I grow.

Yawn. Let's use an example of no relevance here.

If you assume that all markets operate efficiently at all times, you can make a lot of strategic mistakes.

One of Delta's stated perceptions was that the market was distorted, and that the refined product's price did not reflect drops in the price of the raw inputs. Choices made by refiners as to the quantity of various fuels that they chose to produce, and their ability to grab a higher crack spread on Jet A than might exist in an environment where refinery capacity was limited only by capital commitments and not by a host of other issues, like regulations, NIMBYs, etc., and the delivered-product market was not heavily-affected by transportation capacity and cost, had affected the price of this product to the airlines generally and to Delta specifically.

The observation that new refining capacity in this country has been minimal in the past X years is a statement only of a static fact, and I believe that it is an unreasonable deduction that no new capacity has come on only because it isn't "profitable" to be in the refining business. Fact is that there are lots of barriers to entry beyond the availability of capital and the profitability of refining, and it is also in the interest of the few refiners in the US to NOT increase capacity, as reflected in a growing crack spread on certain products.

By being in a position to control the decision as to what products are manufactured, where, and at what profit margin allows Delta to influence the overall market for Jet A, by allowing it, at a simplistic level, to introduce more competition. The CFO has also said that by adding just one more potential supplier of Jet A to the mix, they are able to cut deals with other suppliers that are more favorable than they have been able to make in the past.

This was a relatively-small investment that, assuming it can be operated near break-even, should turn out to be a good one.

Topic: RE: DL Losing Money In Refinery
Username: jayunited
Posted 2013-02-04 09:42:40 and read 17190 times.

I think it is much to soon to say Delta made a mistake in buying this oil refinery. I think this investment that Delta made has to be given time to mature just like any other investment a company would make. I know Delta has expectations and they had expected the refinery to save them millions of dollars in fuel cost in the first year or so. I think this is where Delta made a mistake was in the time frame that they expected to see those savings materialize. United told employees last year that they were studying Delta's move to buy this refinery and if it works for Delta then United might follow suit. I'm sure United is not alone, the entire aviation industry is watching this oil refinery deal and probably hoping that Delta made the right move because a move like this could potentially save airlines hundreds of millions of dollars a year in fuel cost. The aviation industry knows that right now it is to soon to call this investment a lost.

I think that the person who wrote this article is looking at one side of the equation only comparing Delta to Exxon Mobile is ridiculous. Delta just came into the oil business (give them time to get their feet wet) while Exxon has been in the business for years so of course we all expect Exxon to make money. It is simply to early to state with certainty that Delta made a mistake buying the refinery.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 09:47:59 and read 17113 times.

Quoting mayor (Reply 41):
I thought the point of the whole thing was for Trainer to produce jet fuel for DL's OWN operation at a lower price or, at least, with lower costs.

That would be unnecessarily expensive. If DL can sell its overrun locally for the same price it can buy fuel elsewhere, without having to ship the fuel to its other terminals, then it should take the profit from selling what it can't use at the end of the delivery pipeline, then buy locally elsewhere for the rest of the operation.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-04 09:53:11 and read 17012 times.

Quoting jayunited (Reply 43):
Delta just came into the oil business (give them time to get their feet wet) while Exxon has been in the business for years so of course we all expect Exxon to make money.

And, again, we must restate that DL is NOT running the refinery, Monroe LLC, is. DL hired oil and refinery people to run the refinery because they're not as stupid as some on here seem to think they are. They KNEW that they couldn't operate a refinery by themselves.....they had to have people that were experienced in that field.

Topic: RE: DL Losing Money In Refinery
Username: enilria
Posted 2013-02-04 09:56:17 and read 16937 times.

Quoting panamair (Reply 28):
Richard H. Anderson - CEO: More – actually – since we have actually closed on the refinery and spent a lot of time in the turnaround process, we have become more certain of how prudent that investment is for our Company.

That means little. When is the last time you heard a CEO say "well, we are still giving it a shot, but XYZ is a total disaster. We feel like boneheads. We are going to keep at it, however". It is standard for the company to stand behind decisions until there is a public announcement of a new direction. I cannot ever think of a time that a CEO said something is a failure, but we are still going ahead with it. That's a just a lawsuit waiting to happen.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-04 10:11:31 and read 16716 times.

Quoting AeroWesty (Reply 44):
Quoting mayor (Reply 41):
I thought the point of the whole thing was for Trainer to produce jet fuel for DL's OWN operation at a lower price or, at least, with lower costs.

That would be unnecessarily expensive. If DL can sell its overrun locally for the same price it can buy fuel elsewhere, without having to ship the fuel to its other terminals, then it should take the profit from selling what it can't use at the end of the delivery pipeline, then buy locally elsewhere for the rest of the operation.

But that IS what the company has stated the purpose is. They have said that Trainer could provide 80% of DL's jet fuel needs.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 10:25:20 and read 16506 times.

Quoting mayor (Reply 47):
They have said that Trainer could provide 80% of DL's jet fuel needs.

By volume, could very well be. Is DL going to ship fuel out from Trainer to SLC or other stations? Don't think so.

Topic: RE: DL Losing Money In Refinery
Username: hoMsar
Posted 2013-02-04 10:33:12 and read 16359 times.

Quoting wjcandee (Reply 42):
Yawn. Let's use an example of no relevance here.

If you assume that all markets operate efficiently at all times, you can make a lot of strategic mistakes.

One of Delta's stated perceptions was that the market was distorted, and that the refined product's price did not reflect drops in the price of the raw inputs. Choices made by refiners as to the quantity of various fuels that they chose to produce, and their ability to grab a higher crack spread on Jet A than might exist in an environment where refinery capacity was limited only by capital commitments and not by a host of other issues, like regulations, NIMBYs, etc., and the delivered-product market was not heavily-affected by transportation capacity and cost, had affected the price of this product to the airlines generally and to Delta specifically.

The observation that new refining capacity in this country has been minimal in the past X years is a statement only of a static fact, and I believe that it is an unreasonable deduction that no new capacity has come on only because it isn't "profitable" to be in the refining business. Fact is that there are lots of barriers to entry beyond the availability of capital and the profitability of refining, and it is also in the interest of the few refiners in the US to NOT increase capacity, as reflected in a growing crack spread on certain products.

By being in a position to control the decision as to what products are manufactured, where, and at what profit margin allows Delta to influence the overall market for Jet A, by allowing it, at a simplistic level, to introduce more competition. The CFO has also said that by adding just one more potential supplier of Jet A to the mix, they are able to cut deals with other suppliers that are more favorable than they have been able to make in the past.

This was a relatively-small investment that, assuming it can be operated near break-even, should turn out to be a good one.

What you say doesn't contradict what I said.

Whether it's apples or jet fuel, the economic principle is the same. If you can sell it on the open market for higher than its value to you, then economically, that's the best move to make.

In this case, it's the equivalent of me owning an apple tree causing the grocery store to lower its prices on apples. It slides the lines on the graph around a bit, but doesn't change the underlying principle behind it.

It goes back to the other point I made in my previous post:

Quoting hoMsar (Reply 34):
It depends on whether the losses (if there are any) from the refinery exceed the savings to Delta's fuel bill. If the refinery loses $1 but Delta saves $2 on fuel costs, then they come out ahead. If it loses $2 to save Delta $1, they are behind on the deal.

Topic: RE: DL Losing Money In Refinery
Username: EricR
Posted 2013-02-04 10:36:44 and read 16334 times.

Quoting MaverickM11 (Reply 40):
Has Conoco said anything about the deal? Kinda like how US said they were hundreds of millions of dollars better off w/o LGA ?

Directly like we sold them a lemon? - No.

However, Conoco shut down the facility 9 months prior to the sale to DL citing severe market pressure in the East due to product imports, weakness in demand, and regulatory requirements. If Conoco couldn't make the facility work (and they are in the oil business), I'm not sure why DL believes they can.

The state helped subsidized DL's acquisition of the refinery to the tune of $30 million citing that reopening the refinery would bring jobs back to the state.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-04 10:41:57 and read 16239 times.

Quoting EricR (Reply 50):
However, Conoco shut down the facility 9 months prior to the sale to DL citing severe market pressure in the East due to product imports, weakness in demand, and regulatory requirements. If Conoco couldn't make the facility work (and they are in the oil business), I'm not sure why DL believes they can.

Could it be that they were operating the refinery for different reasons than DL is? Conoco was refining and selling, probably mostly gasoline, while DL has stated that they are using the refinery to supply their own operations with jetfuel.

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-04 10:50:46 and read 15936 times.

Quoting AeroWesty (Reply 48):
Is DL going to ship fuel out from Trainer to SLC or other stations?

No. Delta will trade other petroleum byproducts to refineries near Trainer in exchange for jet-A elsewhere.

Topic: RE: DL Losing Money In Refinery
Username: EricR
Posted 2013-02-04 10:52:39 and read 15901 times.

Quoting mayor (Reply 51):
Could it be that they were operating the refinery for different reasons than DL is? Conoco was refining and selling, probably mostly gasoline, while DL has stated that they are using the refinery to supply their own operations with jetfuel.

Could very well be. In fact, DL's use of the refinery could result in a different outcome.

However, DL will still have to operate the plant to some extent in a similar manner. In other words, they will still have to sell excess on the open market because the facility will not supply 100% of DL's fuel needs. It will only supply a certain percentage of DL's fuel needs within a certain radius of the refinery. For example, fuel needs in LAX or SLC will not be supplied by the Trainer facility.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-04 10:55:33 and read 15859 times.

Quoting EricR (Reply 50):
Quoting MaverickM11 (Reply 40):
Has Conoco said anything about the deal? Kinda like how US said they were hundreds of millions of dollars better off w/o LGA ?

Directly like we sold them a lemon? - No.

Conoco was absolutely clear before, during and after the sale that the Trainer refinery was losing money.

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-04 10:56:52 and read 15811 times.

Quoting EricR (Reply 53):
However, DL will still have to operate the plant to some extent in a similar manner. In other words, they will still have to sell excess on the open market because the facility will not supply 100% of DL's fuel needs. It will only supply a certain percentage of DL's fuel needs within a certain radius of the refinery. For example, fuel needs in LAX or SLC will not be supplied by the Trainer facility.

Please refer to my prior post, #52.

Topic: RE: DL Losing Money In Refinery
Username: Flighty
Posted 2013-02-04 11:00:21 and read 15743 times.

Quoting enilria (Reply 46):
That means little.

It was actually a grammatically meaningless sentence. It seemed noncommittal, particularly in light of what you said -- that legally, he almost can't criticize the wisdom of ongoing strategy.

Topic: RE: DL Losing Money In Refinery
Username: MSPNWA
Posted 2013-02-04 11:25:34 and read 15421 times.

Quoting hoMsar (Reply 34):
But that comes at an opportunity cost. The opportunity cost is selling that same kerosene at market rates (whether to Delta, or to some other company, and thus taking in a bunch of money, some of which could go to offset Delta's market-rate fuel purchases).

If I plant an apple tree because I don't want to pay the grocery store to buy apples, I'll certainly cut down on my grocery bill. But if I could sell those apples (rather than eating them myself) for a higher price than I could buy apples from the store, then I'd actually be better off doing so. If I could sell apples from my tree for the same price that I could buy them from the store, then it doesn't really make a difference if I eat my own apples or buy them from the store while selling the ones I grow.

As an economist, I believe you were right on. And that's why I've been scratching my head all along as to Delta's thought process behind Trainer. In simple theory is seems great to control your own supply of inputs. But if you can't produce it more efficiently than someone else can, you're better off trading. In the end specialization wins. The only way Delta can save money on this is if Trainer itself is profitable. It wasn't before, and I don't see Monroe changing that.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-04 11:53:54 and read 15031 times.

Quoting MSPNWA (Reply 57):
As an economist, I believe you were right on. And that's why I've been scratching my head all along as to Delta's thought process behind Trainer. In simple theory is seems great to control your own supply of inputs. But if you can't produce it more efficiently than someone else can, you're better off trading. In the end specialization wins. The only way Delta can save money on this is if Trainer itself is profitable. It wasn't before, and I don't see Monroe changing that.

Perfectly put.

Unless it is profitable the Trainer project is a failure for DL. There is a train of thought on aNet that simply owning a refinery gives DL some sort of cost advantage on jet fuel. Owing a refinery simply gives DL a refinery business. The refinery that DL has acquired has lost massive amounts of money for many years and one of the premier refining companies in the world has determined that it can not be operated profitably.

Topic: RE: DL Losing Money In Refinery
Username: SSTeve
Posted 2013-02-04 12:32:35 and read 14517 times.

Quoting mcg (Reply 58):
There is a train of thought on aNet that simply owning a refinery gives DL some sort of cost advantage on jet fuel. Owing a refinery simply gives DL a refinery business.

And owning planes simply means they own planes, not that they have the lowest CASM of any obtainable plane and crew.

Topic: RE: DL Losing Money In Refinery
Username: Flighty
Posted 2013-02-04 12:44:18 and read 14344 times.

Quoting MSPNWA (Reply 57):
But if you can't produce it more efficiently than someone else can, you're better off trading. In the end specialization wins.
Quoting mcg (Reply 58):
The refinery that DL has acquired has lost massive amounts of money for many years

It is conceivable that even if the refinery costs some money, like insurance does, it is still worth having, like insurance sometimes is. The refinery's profits are reverse correlated with Delta's. If it makes money _during times of peak refiner's premium_, it will offset Delta's loss at that time. That has a value. If it helps Delta break through anti-competitive refiners and distributors on the East Coast, that also has some value.

Topic: RE: DL Losing Money In Refinery
Username: EricR
Posted 2013-02-04 13:01:32 and read 14146 times.

Quoting mcg (Reply 54):
Conoco was absolutely clear before, during and after the sale that the Trainer refinery was losing money.

Agreed, and I never said Conoco did anything other than full disclosure. I was responding to a previous question. DL was so concerned with escalating fuel prices early last year that they believed buying a refinery would resolve this issue. The problem is that the Trainer facility was a dog with fleas. DL was too quick to pull the trigger on this deal out of fear with rising fuel prices without doing enough due dilligence.

Quoting rwy04lga (Reply 55):
Please refer to my prior post, #52.

Correct. Selling it on the open market. Trading for jet-A elsewhere is akin to the open market. No one will be willing to trade with DL unless the price is competitive with the open market price.

Topic: RE: DL Losing Money In Refinery
Username: Tdan
Posted 2013-02-04 13:02:32 and read 14124 times.

Quoting mcg (Reply 54):
Quoting EricR (Reply 50):
Quoting MaverickM11 (Reply 40):
Has Conoco said anything about the deal? Kinda like how US said they were hundreds of millions of dollars better off w/o LGA ?

Directly like we sold them a lemon? - No.

Conoco was absolutely clear before, during and after the sale that the Trainer refinery was losing money.

See my reply #3. Just as in Liar's Poker, the first rule of trading is to find the idiot in the room. I'm not saying that's what happened here as the jury's still out, but it sure seems plausible that Delta was the idiot that got blown up in this case.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-04 13:09:37 and read 14051 times.

I just wonder that if this had been WN that had done this, would we be getting all these negative comments or would it be look on as an innovative, genius move?  


The thing is that it really only got up and running not even 6 months ago and during that time Hurricane Sandy came along.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 13:17:50 and read 13924 times.

Quoting Tdan (Reply 62):
it sure seems plausible that Delta was the idiot that got blown up in this case.

It's not that easy to evaluate using public numbers.

The equation to evaluate if Trainer is a good deal for Delta has always been this: Does saving on the crack spread + the opportunistic profits from selling the non Jet-A production equal or exceed the extra expense to source the pricier raw product Trainer requires + the cost of refining and distributing the oil to end users.

Conoco, as a producer, values the economics of running Trainer differently than Delta, as an end user, would. If Conoco could refine Brent crude cheaper elsewhere on top of Brent being a less-expensive raw product, then it would make sense to close the facility. But for Delta, it could cost them less overall than the expense of buying at retail at the pump.

Topic: RE: DL Losing Money In Refinery
Username: bobnwa
Posted 2013-02-04 13:34:33 and read 13705 times.

Quoting DeltaMD90 (Reply 30):
Wow, it isn't immediately making money, let's shut it down. Look at the money pit Virgin America, that abomination is still flying. Maybe not the best example, but my point is I don't know if DL will make money on it or not, it may be a big flop like a lot of other things DL did in the past, but it's pretty soon to be freaking out about a loss... I never thought it would be an instant profit or everyone would be doing it. If it does indeed make money, it'll be years down the road

Jeez, after reading your post one may it makes one wonder if there is anything good about Delta in your mind?

Topic: RE: DL Losing Money In Refinery
Username: brilondon
Posted 2013-02-04 13:46:05 and read 13538 times.

Quoting SYDSpotter (Reply 5):

There are better ways to mitigate fuel prices such entering into hedges and even though they are susceptible to fluctuations, but at least you need to outlay $millions buying an oil refinery!!
Quoting Tdan (Reply 3):
Traditionally major airlines haven't even been very good at running aircraft profitably, can't quite work out why they thought they could run a refinery successfully.

I don't think that DL was going to purchase a refinery to make money but to hedge against the higher prices in fuel and never considered it as a source of revenue mainly because they probably did not intend to sell fuel to other people.

Quoting bongodog1964 (Reply 4):
Traditionally major airlines haven't even been very good at running aircraft profitably, can't quite work out why they thought they could run a refinery successfully.
Quoting Deltal1011man (Reply 22):
Quoting UALWN (Reply 8):
The article adresses this point, and concludes that, with or without Sandy, DL's business model with respect to the refinery is flawed.

The article is full of suppositions and opinion and really doesn't address the real reason that DL purchased the refinery in the first place.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-04 13:55:52 and read 13469 times.

Quoting AeroWesty (Reply 64):
But for Delta, it could cost them less overall than the expense of buying at retail at the pump.

The price to Delta Airlines (literally the airline operation of of Delta Airlines, Inc.) of jet fuel is always the market price of jet fuel in the location it is being purchased. The reason for this is that the refinery is always going to sell their product at the market price, they wouldn't ever accept less and the airline won't pay more than market. Thus, the jet fuel produced by Trainer always sells for the market price of jet fuel.

Delta Airlines, Inc. has a relatively small ancillary business that is the Trainer refinery. The question is can this business be operated in a profitable fashion? If it can be operated profitably then it would be a good investment for Delta Airlines, Inc. It's previous owner concluded that it couldn't be operated profitably (based on many years of experience). As of yet there is little indication that Delta Airlines, Inc can change this experience.

Topic: RE: DL Losing Money In Refinery
Username: exFWAOONW
Posted 2013-02-04 14:04:41 and read 13328 times.

Two thoughts I haven't seen expressed yet.

Tax impacts. OIl companies operate with a different set of tax credits available. Can DL "make money" by operating the refinery at a loss and using the tax credits to offset?

If Conoco was tweeking the refinery to produce gasoline, it may not make a profit. As I recall, kerosene (Jet A is similar) is much easier to produce from crude and tweeking a refinery to up the production of kerosene based products might actually allow the plant to operate at a profit. Add in the new sources via rail and lets revisit this at the end of next year.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-04 14:09:58 and read 13256 times.

Quoting exFWAOONW (Reply 68):
If Conoco was tweeking the refinery to produce gasoline, it may not make a profit. As I recall, kerosene (Jet A is similar) is much easier to produce from crude and tweeking a refinery to up the production of kerosene based products might actually allow the plant to operate at a profit.

Don't you think that if jet fuel was more profitable than gasoline Conoco would have adjusted Trainer's output to produce more jet?

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-04 14:17:58 and read 13172 times.

Quoting brilondon (Reply 66):
they probably did not intend to sell fuel to other people.
Quoting exFWAOONW (Reply 68):
kerosene (Jet A is similar) is much easier to produce from crude and tweeking a refinery to up the production of kerosene based products might actually allow the plant to operate at a profit.

According to this report

http://blogs.platts.com/2013/01/22/delta_trainer/

jet A only represents 20% of the production of the refinery. DL wants to increase that to one third, but many people are skeptical about this being possible. So, yes, DL will have to sell fuel to other people.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 14:20:19 and read 13120 times.

Quoting mcg (Reply 67):
Thus, the jet fuel produced by Trainer always sells for the market price of jet fuel.

Your argument dismisses the affect that vertical integration has on this entire discussion. Delta is both the owner of the distiller and its consumer of end product. Delta can absorb a lot of other costs which normal refiners cannot, and still remain competitive, UNTIL the unique costs of operating Trainer exceed the crack spread of Jet-A on the open market.

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-04 14:24:24 and read 13063 times.

Quoting AeroWesty (Reply 71):
Delta is both the owner of the distiller and its consumer of end product.

Only of about 20% of the end product. See my post above.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 14:27:14 and read 13046 times.

Quoting UALWN (Reply 72):
Only of about 20% of the end product.

By extension, already recognized in my reply #64, and didn't need repeating.

Topic: RE: DL Losing Money In Refinery
Username: MaverickM11
Posted 2013-02-04 14:33:40 and read 12981 times.

Quoting AeroWesty (Reply 71):
Delta can absorb a lot of other costs which normal refiners cannot, and still remain competitive

Like what?

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-04 14:39:34 and read 12914 times.

Quoting AeroWesty (Reply 73):
By extension, already recognized in my reply #64, and didn't need repeating.

Then why do you say in your reply #71 that DL is both the producer and the consumer of the end product, if it really isn't?

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 14:40:58 and read 12901 times.

Quoting MaverickM11 (Reply 74):
Like what?

If you read the article the OP linked, the Trainer facility requires a more expensive oil, such as Nigerian Forcados. Depending upon the pricing premium for that oil vs. the crack spread it would otherwise have to pay for Jet-A, Delta could actually run at a "profit", whereas a pure refiner may not. Delta also has the advantage of offsetting any deficit by selling non Jet-A product. Delta is running this refinery on an entirely different economic model. This has all been discussed in prior posts in this very thread.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 14:43:32 and read 12855 times.

Quoting UALWN (Reply 75):
Then why do you say in your reply #71 that DL is both the producer and the consumer of the end product, if it really isn't?

Because this is a discussion forum, where you don't have to go back and re-cite every example you've already given, simply to respond to one tangential point.

Topic: RE: DL Losing Money In Refinery
Username: UA787DEN
Posted 2013-02-04 14:53:38 and read 12756 times.

So the Airline Industry Management can fail at oil enough to even drive up prices on oil for themselves? Pure skill.

Quoting exFWAOONW (Reply 68):
Can DL "make money" by operating the refinery at a loss and using the tax credits to offset?

Offset a little, but not enough, presuming they even pay oil and not airline tax on that.

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-04 15:05:16 and read 12613 times.

Quoting AeroWesty (Reply 77):
Because this is a discussion forum, where you don't have to go back and re-cite every example you've already given, simply to respond to one tangential point.

Those were neither an example nor a tangential point.

Topic: RE: DL Losing Money In Refinery
Username: MaverickM11
Posted 2013-02-04 15:09:34 and read 12562 times.

Quoting AeroWesty (Reply 76):
the Trainer facility requires a more expensive oil, such as Nigerian Forcados. Depending upon the pricing premium for that oil vs. the crack spread it would otherwise have to pay for Jet-A

How is a more expensive input a good thing? Particularly when the output is sold at market price regardless of where the oil was pulled from the ground?

Quoting AeroWesty (Reply 76):
Delta is running this refinery on an entirely different economic model.

They may think so but the underlying economics are the same for everyone. They still have to unload most of the product at market prices, even if they give the Jet A away to DL.

Quoting AeroWesty (Reply 76):
Delta also has the advantage of offsetting any deficit by selling non Jet-A product.

Wouldn't any refinery have the advantage of selling one oil output to offset another?

Topic: RE: DL Losing Money In Refinery
Username: bongodog1964
Posted 2013-02-04 15:13:58 and read 12526 times.

Quoting rwy04lga (Reply 17):
Quoting bongodog1964 (Reply 4):
Traditionally major airlines haven't even been very good at running aircraft profitably

If they weren't profitable, how would they ever become 'major airlines'? FYI, Delta made $1.6B profit last year. How did your favorite airline fare? Delta isn't 'running the refinery', Monroe is. Am I to respect a journalist that relies on 'rumor' and thrice incorrectly spells the name of the company in question? Even a quick glance at Wikipedia shows it to be spelled 'Delta Air Lines'. Any journalist worth his salt should AT LEAST correctly spell the name of the name of the company he's writing about. Leads me to conclude that the journalist's research is flawed (or at least lazy) and, by extension, so is the article. Let's revisit this thread in a year and see who says 'I told you so'. I'm confident that Delta knows what it's doing.

In 2005 Delta Airlines went into Ch 11, when they emerged the shareholders more or less saw their investments wiped out as the debtors swapped debt for shares, since then until recently Delta's performance has been far from stella. if you look at the statistics in 2008/9 they recorded 9 quarters of succesive losses. This sort of performance is by no means unusual for major airlines, as they bounce in and out of trouble.
Here in the UK Delta have just bought 49% of VS, a stake on which SQ have lost a small fortune, meanwhile our major UK airline BA have turned in some shocking losses at times in the past decade

As to the "Monroe are running the refinery" Its a wholly owned subsidiary, all profits/losses will write directly into Delta's accounts.

Refining is recognised to be a low margin activity, the oil majors are shedding refineries not opening them up

Topic: RE: DL Losing Money In Refinery
Username: B757forever
Posted 2013-02-04 15:15:26 and read 12494 times.

Quoting EricR (Reply 61):
DL was too quick to pull the trigger on this deal out of fear with rising fuel prices without doing enough due dilligence.

I think it is way too early to tell based on one article from a nameless author. Richard Anderson did not wake up one morning and decide to buy an oil refinery. The deal to acquire the refinery was several years in the making. Numerous veterans from the refining industry were brought into the decision making process early. Two of which were Jeffrey Warmann ( now the CEO of Monroe Energy) who is a 25-year refinery veteran who in his last position as manager for Murphy Oil USA Inc.’s Meraux, La. refinery increased the refinery’s output by more than 30 percent and significantly improved its profitability. In addition to Warmann there is William Easter who is on the Delta Board of Directors who had a 32-year career in natural gas, crude oil and refined product supply, transportation, refining and marketing for Conoco and ConocoPhillips.
The refinery will start to run domestic oil this month, greatly reducing the cost of feedstock although the goal was to reduce the crack cost which ran as high as $36perBBL. Was the acquisition good or bad? Time will tell.  

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-04 15:25:24 and read 12378 times.

Quoting bongodog1964 (Reply 81):
stella

Who's stella?

Up until recently the whole airline industry was in turmoil. Some, but not all, have made a nice recovery...Delta among them. I say Delta is smarter than you, you say you're smarter than Delta. We'll just have to wait and see who's right. Care to buy an 'R'?

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 15:46:46 and read 12137 times.

Quoting MaverickM11 (Reply 80):
How is a more expensive input a good thing?

I didn't claim it was a 'good thing' necessarily. It simply puts the financial equation into a different model, one which is vertically integrated. Note I said that that model "could" absorb costs other refiners couldn't. This is because Delta is comparing the end cost of buying their own raw stock and refining it, vs. letting another refiner buy raw stock, then paying them the crack spread for the final refined product.

Quoting MaverickM11 (Reply 80):
Wouldn't any refinery have the advantage of selling one oil output to offset another?

Certainly, however, Delta is doing Trainer so that it can save money against the crack spread. Selling the products auxiliary to Jet-A production may add to its savings if it can sell those auxiliary products for a profit. This lessens the impact of the higher cost of the raw product. Again, Delta is running Trainer using a different financial model with different expectations.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-04 16:02:04 and read 11993 times.

Quoting AeroWesty (Reply 84):
Certainly, however, Delta is doing Trainer so that it can save money against the crack spread. Selling the products auxiliary to Jet-A production may add to its savings if it can sell those auxiliary products for a profit. This lessens the impact of the higher cost of the raw product. Again, Delta is running Trainer using a different financial model with different expectations.

The problem is that Delta can't sell any of the products produced at Trainer at a profit. Delta loses money on every gallon.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-04 16:07:16 and read 11959 times.

Quoting bongodog1964 (Reply 81):
In 2005 Delta Airlines went into Ch 11, when they emerged the shareholders more or less saw their investments wiped out as the debtors swapped debt for shares, since then until recently Delta's performance has been far from stella. if you look at the statistics in 2008/9 they recorded 9 quarters of succesive losses. This sort of performance is by no means unusual for major airlines, as they bounce in and out of trouble.

It's a shame that your entire knowledge of DL's history only starts in 2005. Perhaps you might be enlightened if you went back a little further and looked at the facts. Considering the facts from 2008 & 09, how about their financial performance SINCE then as long as you only want to look at a couple of years at a time.

Quoting bongodog1964 (Reply 81):
As to the "Monroe are running the refinery" Its a wholly owned subsidiary, all profits/losses will write directly into Delta's accounts.

Yes, the profits/losses are going into DL's accounts. However, the truth still is that Monroe is running the refinery. That's why they've hired people with oil refinery experience to run the SUBSIDIARY. Just a question or two......when UAL owned hotels and rental car concerns did they use airline people to run them or did they use people that had experience in those businesses? My guess is the latter and that's exactly what DL is doing now, with Monroe. As I recall, DL is not entirely inexperienced in the oil business. They owned a pipleline in the south up to the 80s.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 16:12:43 and read 11872 times.

Quoting mcg (Reply 85):
The problem is that Delta can't sell any of the products produced at Trainer at a profit.

I'd like to see some numbers on that, that isn't anything itemized in the linked article comparing like-for-like. Did every refinery located in the path of Sandy other than Trainer report a 4Q profit? The article doesn't say. It only says that refiners in general posted better results. That is a problem operating only one refinery, granted.

The point still remains though, and one I've yet to see anyone dispute, is if the cost of buying the raw product and paying for it to be refined will be more expensive than simply buying the fuel outright from a third-party in the long term. Start-up costs were always expected, and Sandy unexpected, but over time Trainer should be beneficial to Delta's bottom line if all of its ducks line up properly. (I'm not making any predictions though, which is why I use "could" and "should" a lot.)

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-04 16:17:06 and read 11849 times.

Quoting AeroWesty (Reply 87):
The point still remains though, and one I've yet to see anyone dispute, is if the cost of buying the raw product and paying for it to be refined will be more expensive than simply buying the fuel outright from a third-party in the long term. Start-up costs were always expected, and Sandy unexpected, but over time Trainer should be beneficial to Delta's bottom line if all of its ducks line up properly. (I'm not making any predictions though, which is why I use "could" and "should" a lot.)

The evidence is that one can buy refined petroleum products cheaper than manufacturing them at Trainer. The evidence is simple, Trainer lost money for Conoco and continues to lose money for Delta. Every gallon costs more to produce than the revenue it is sold for.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 16:20:49 and read 11802 times.

Quoting mcg (Reply 88):
The evidence is simple, Trainer lost money for Conoco and continues to lose money for Delta.

Like I said, I'd like to see some numbers on that. Just because Trainer lost money for Conoco doesn't necessarily mean that the cost to run Trainer is higher than the crack spread per gallon Delta is using as its basis for whether Trainer is worth it or not, but I'm certainly open to reviewing any evidence you have.

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-04 16:37:16 and read 11646 times.

Quoting AeroWesty (Reply 84):
Selling the products auxiliary to Jet-A production may add to its savings if it can sell those auxiliary products for a profit.
Quoting mcg (Reply 85):
The problem is that Delta can't sell any of the products produced at Trainer at a profit. Delta loses money on every gallon.

Delta will be trading byproducts from Trainer for jet-A elsewhere.

Quoting mayor (Reply 86):
As I recall, DL is not entirely inexperienced in the oil business. They owned a pipleline in the south up to the 80s.

And we also have experience in crop-dusting!  

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-04 16:51:22 and read 11512 times.

Quoting AeroWesty (Reply 89):
Like I said, I'd like to see some numbers on that. Just because Trainer lost money for Conoco doesn't necessarily mean that the cost to run Trainer is higher than the crack spread per gallon Delta is using as its basis for whether Trainer is worth it or not, but I'm certainly open to reviewing any evidence you have.

It's quite simple: Trainer lost money, therefore the cost of producing each gallon of product is greater than the revenue each gallon generated. Thus the cost of production is greater than the market value of each gallon produced. Conoco concluded the way to maximize profit was to shut Trainer down. It's a money loser.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 17:23:31 and read 11236 times.

Quoting mcg (Reply 91):
It's quite simple: Trainer lost money, therefore the cost of producing each gallon of product is greater than the revenue each gallon generated.

I've searched, and not found a single source which says that Trainer was operating at a loss. If you can do better to back up your claim, I'm all ears.

The closest I've come is this quote from their press release announcing the idling of the plant, “After exploring a wide range of alternatives for the refinery, the decision to sell is based on the level of investment required to remain competitive."

Source: http://www.conocophillips.com/EN/new...ses/2011news/Pages/09-27-2011.aspx

It could even be said that the closure was a strategic move to take refining capacity out of the Northeast to raise the price of refined products.

Note: Other news stories stated that there were five bidders for the plant, including one other who would run it as a refinery, the others wanted it for storage.

Topic: RE: DL Losing Money In Refinery
Username: EricR
Posted 2013-02-04 18:15:57 and read 10819 times.

Quoting AeroWesty (Reply 92):
I've searched, and not found a single source which says that Trainer was operating at a loss. If you can do better to back up your claim, I'm all ears..



There are a large number of sources indicating that the facility was operating at a loss. The fact that COP shut down the facility 8 months prior to the sale is one indication. Below is one link indicating the facility was operating at a loss.

The company, which has moved to get rid of what it considers unprofitable operations, has already begun to idle the refinery and will close it permanently within six months if a buyer is not found.


http://www.reuters.com/article/2011/...lips-trainer-idUSTRE78Q5R320110927

Topic: RE: DL Losing Money In Refinery
Username: prebennorholm
Posted 2013-02-04 18:27:32 and read 10723 times.

I will just copy and paste what I wrote here when DL bought Trainer:

First of all, nobody can run one single refinery profitably in competition with the oil majors, who are running them by the dozens, and have done so for ages.

Secondly, you cannot outsource operation of a refinery in a profitably way. You cannot shift operator without shutting down for months if not years for training new staff, and absorb enormous losses on dead capital while down. Therefore any operator can (and will) charge you whatever he wants for running it for you. And that operator will assign his most capable engineers to his own facilities, where they provide the most profit for him.

And thirdly, if you really want to buy and run a refinery, then the last thing you should buy is what an oil major wants to get rid of.

The whole thing is a 100% flawed business model.

Some posters on this thread make it seem like a refinery is like a coffee machine, where you press a button to make crude oil into high grade products. It is a very complicated high tech chemical operation, where things happen now and then, some predictable, some not, but all of them demand highly skilled and experienced people - and most important: backup people - to deal with the issues correctly and fast in an economic way, or you loose money like a landslide. DL just learned that the hard way.

The only positive thing we can say: Conoco-Phillips is laughing. They actually got money for what would have cost them a fortune to make into a corn field.

What DL should have done instead: They should have drilled some holes in the ground to produce some cheap high grade crude oil, and then let the oil majors compete against each other on refining it into Jet-A etc. for them. That would work. The only thing needed would be to hire a couple of thousand of the world's best geologists and invest a few billion $$$ in hardware - and then have patience for 5-10 years or whatever time it takes to fully develop oilfields.

Topic: RE: DL Losing Money In Refinery
Username: STT757
Posted 2013-02-04 18:29:07 and read 10697 times.

How did Sandy affect Trainer? As far as I know that area was well outside the Impact area, I don't think they lost power even briefly. I was without power for a week after Sandy, Where I work everone from Camden county, Philly etc thought nothing happened. The refineries in Northern New Jersey were hit real hard though, all of them were flooded and some had spills.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 18:54:29 and read 10447 times.

Quoting EricR (Reply 93):
There are a large number of sources indicating that the facility was operating at a loss.

How much was it losing? Interesting that the article you linked stated that NE gas prices and futures went up 5% on the announcement of refinery closings.

Quoting STT757 (Reply 95):
How did Sandy affect Trainer?

This article here indicates that it was a pipeline issue which delayed opening the refinery:

http://articles.philly.com/2012-12-1...ery-delta-air-lines-edward-bastian

Topic: RE: DL Losing Money In Refinery
Username: STT757
Posted 2013-02-04 19:02:37 and read 10352 times.

I still don't get it, the lights didn't even flicker in that area, no wind or flooding.

Topic: RE: DL Losing Money In Refinery
Username: EricR
Posted 2013-02-04 19:46:03 and read 10024 times.

Quoting AeroWesty (Reply 96):
How much was it losing?.


I can do you one better. I can tell you what it is doing now. It lost $63 million in Q4 mainly attributed to Sandy. However, they are expecting to lose $100 million in Q1-2013. Apparently the facility "relies on crudes at about $4/b above Brent (The plant is old and relies on expensive imported crude feedstock mostly from Nigeria.) "


http://nz.finance.yahoo.com/news/del...s-bigger-risk-peers-115000949.html

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-04 19:57:09 and read 9933 times.

Quoting EricR (Reply 98):
I can tell you what it is doing now.

LOL, word for word from the OP's link. Don't you guys ever read the links?

Topic: RE: DL Losing Money In Refinery
Username: Aerowrench
Posted 2013-02-04 20:14:10 and read 9799 times.

Quoting UALWN (Thread starter):
According to this article, DL's last year "genius" move to buy an oil refinery in Pennsylvania may not have been so brilliant after all. It incurred heavy losses in Q4 2012, and the prospects, according to this analysis, are not particularly good for 2013 either. Interestingly, John Ruggles, who engineered the purchase, left DL abruptly at the end of 2012.

http://seekingalpha.com/article/1152...yahoo

And through it all, Delta still managed to crank out a billion dollar profit with a higher margin than Southwest. In so far as the motive for Delta purchasing the refinery, it is a move right out of Atlas Shrugged and should be considered a wise investment with a return that is not going to be easily quantified by Wall Street.

Topic: RE: DL Losing Money In Refinery
Username: PassedV1
Posted 2013-02-04 20:21:48 and read 9745 times.

I don't know anything about this particular deal...but...

Trainer to Conoco and Trainer to Delta seem fundamentally different to me because of where they fit into each business.

An even better analogy than apple trees might be Conocos 737 operation in Alaska where they fly several times a day between Anchorage, Deadhorse, and other Alaska destinations important to Conoco. Delta Airlines (or more realistically, Alaska Airlines) has virtually identical 737's that could fly these exact same routes but has obviously decided that they can't do it profitably or they would be. Do you nay-sayers contend that Conoco could not/should not be operating this fleet of 737's because it would be cheaper for them to just buy the tickets on the open market? If Alaska Airlines doesn't have the expertise to make 6 more daily flights to Deadhorse work, than certainly Conoco is way out of their league and couldn't make it work.

I say this tongue-in-cheek because we all know the answer, and that is that the Conoco 737 operation and an Alaska/Delta 737 operation on the slope are looked at differently at both companies.

For Alaska/Delta to want to run the operation, the operation would have to not just break even, but generate a margin above there Cost of Capital as Alaska/Delta are not in business to "break-even"

But when Conoco analyzes the identical slope operation, it is a pure cost that is necessary to run there core business. Even if Conoco were able to buy tickets at a cheaper price on the open market, there are advantages to being the owners of the airplanes, i.e. they can set the schedule, they can prioritize what flights get cx'd in the event of mx to their needs, etc.

I think something similar is in play with the Trainer within Conoco and Trainer within Delta comparison.

So when Conoco analyzes this capital asset they have called the Trainer refinerary, they are looking at it to make money. The benchmark they use is similar to what Delta uses for it's 737's...can this asset generate money in excess of our cost of capital. If yes, keep it, if no, reinvest it somewhere else where it can or return it to shareholders.

Delta sees the Trainer refinery as a hedge. A hedge means protecting yourself from FUTURE price fluctuations. Delta sees a cost (crack spread) that is rising at a faster rate then the rate at which the actual costs or producing the product are rising. So right now the crack is about .25. I'm making up these numbers but say Deltas cost to crack is .30. Obviously, at this point in time, Delta is "losing" money on this deal as all hedges do initially. But, because of this deal, Delta is essentially locking in a crack of .30 (or whatever the current cost is). Because this is a HEDGE, the important factor is what happens when the crack spread hits .31 in 3 years, which is not unrealistic considering how fast it has been rising in the past.

Yes, it is true that if the crack hits .35, Delta would be foolish not to sell whatever product on the open market, but then the Trainer facility would be a profit center to off-set the increased cost Delta is paying at the pump. During periods when the crack is less than Trainer's cost, the Trainer facility will be a "cost" no different than any other fuel hedging program in place at most other airlines...offset by the fact that they are paying less for their gas at the pumps.

For Conoco Trainer is supposed to make money...for Delta, it is insurance against future price movements in the wrong direction.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-04 20:59:42 and read 9476 times.

Quoting EricR (Reply 98):
Apparently the facility "relies on crudes at about $4/b above Brent (The plant is old and relies on expensive imported crude feedstock mostly from Nigeria.) "

And yet, DL has already stated that they will start using product from North Dakota for their crude. Is this not cheaper and easier to refine that what they're using now?

Quoting prebennorholm (Reply 94):
You cannot shift operator without shutting down for months if not years for training new staff, and absorb enormous losses on dead capital while down.

And yet, they did just that and, I assume, hired the staff that was working there, for Conoco-Phillips.

Quoting prebennorholm (Reply 94):
Therefore any operator can (and will) charge you whatever he wants for running it for you. And that operator will assign his most capable engineers to his own facilities, where they provide the most profit for him.

Considering that this operation is NOT oursourced, but a wholly owned subsidiary, this statement is hardly valid.


Your cut and paste job makes even less sense now than it did then, considering what we've learned since then.

Topic: RE: DL Losing Money In Refinery
Username: DeltaMD90
Posted 2013-02-04 21:27:38 and read 9300 times.

Quoting bobnwa (Reply 65):
Jeez, after reading your post one may it makes one wonder if there is anything good about Delta in your mind?

lol are you serious? If anything, I have an extremely pro-DL bias. My point is that yes, this may be a flop for all we know, but you gotta give it more time. Maybe it'll just take time. DL has been doing an excellent job the past few years, very innovative and they're thinking outside the box. Of course not everything is going to work, so if this doesn't, they don't need to be labeled as idiots...

Topic: RE: DL Losing Money In Refinery
Username: alfa164
Posted 2013-02-04 21:31:39 and read 9294 times.

Good point. If Trainer loses $100 million in a year, but allows Delta to save $150 million on its fuel costs, will some Wall Street writer say Trainer's losses make it a "bad investment"?

Topic: RE: DL Losing Money In Refinery
Username: tugger
Posted 2013-02-04 23:12:50 and read 8778 times.

Quoting wjcandee (Reply 12):
And remember, if the REFINERY SUBSIDIARY loses money, this isn't necessarily a loss for Delta on its overall plan, which is for the airline subsidiary to save almost $300 million in the price it pays whatever supplier(s) for aviation fuel.
Quoting MaverickM11 (Reply 80):
They may think so but the underlying economics are the same for everyone. They still have to unload most of the product at market prices, even if they give the Jet A away to DL.

A very interesting read that relates the complex economics fairly understandably with this quote showing it best:

Quote:
Oil doesn’t just move in and out of the tank farms, it gets shuffled around inside them, too, from tank to tank. One of the main ways oil traders make money at Cushing is by blending together the thousands of types of crude that show up there, from light, sweet stuff that looks like Mountain Dew to heavy, sour goo that looks like molasses. A Cushing tank farm is not only a storage hub but also a giant blender—there are rotating blades at the bottom of each tank—mixing oil into an infinite number of specifications. A refinery making asphalt may want a heavier blend of crude while one that creates jet fuel wants extra light and sweet.
http://www.businessweek.com/articles...aders-are-making-millions#r=lr-fst

Another interesting article, which if accurate as presented will mean more lower cost oil of the appropriate type for the plant to refine in the future.

Quote:
While the demand for heavy, sour crude will be good news for Canada, the shale oil revolution in the U.S. will likely result in a steep drop in oil imports from Africa, mainly from OPEC’s biggest West African members, Nigeria and Angola. Both are suppliers of light, sweet crude. Since July 2010, the U.S. has cut its Nigerian imports by half, from more than 1 million barrels a day to 543,000 as of October 2012, according to the most recent data available through the EIA. Imports from Angola have dipped below 200,000 barrels a day, from an average of 513,000 in 2008. “By the second quarter of this year, we will stop importing West African light, sweet crude into the Gulf,” Morse predicts. Sometime before mid-2014, he says the U.S. and Canada will stop importing crude from West Africa altogether.
http://www.businessweek.com/articles...ill-reshape-the-world-crude-market

Quoting PassedV1 (Reply 101):
I don't know anything about this particular deal...but...

Trainer to Conoco and Trainer to Delta seem fundamentally different to me because of where they fit into each business.

Ding, Ding, Ding, Ding, Ding, Ding!!! Winner! Winner! Winner!

Excellent points. And though I too do not know all that much about about the oil business but I do know an awful lot about business. And....

Quoting PassedV1 (Reply 101):
So when Conoco analyzes this capital asset they have called the Trainer refinerary, they are looking at it to make money. The benchmark they use is similar to what Delta uses for it's 737's...can this asset generate money in excess of our cost of capital. If yes, keep it, if no, reinvest it somewhere else where it can or return it to shareholders.

A huge difference, which most here are being confused by, is the fact the to Conoco it is more profitable to close down the refinery and drive up prices by reducing capacity and they can make up the profit on price increases through their other resources. While for airlines, there is a benefit to keep as much capacity on line to reduce pricing pressures and pricing power of the refiners.

Basically as wjcandee, PassedV1, Aerowesty and others have noted, the two companies have opposing definitions for what makes an investment "profitable" for the company's needs.

Tugg

Topic: RE: DL Losing Money In Refinery
Username: bongodog1964
Posted 2013-02-04 23:14:45 and read 8763 times.

Virtually all the profits in the oil business come from exploration and extraction, refining is a low margin activity as is distribution, hence why you presently see the oil majors extracting themselves from refining and distribution.

If hedging isn't good enough for an end user they need to start drilling holes in the ground, not buying a loss making, shut down rfefinery

Quoting mayor (Reply 86):
t's a shame that your entire knowledge of DL's history only starts in 2005

To a great extent pre 2005 isn't relevant as thats the year that ch11 reorganisation saw the existing shareholders more or less wiped out.

Quoting mayor (Reply 86):
Considering the facts from 2008 & 09, how about their financial performance SINCE then as long as you only want to look at a couple of years at a time.

I've looked at the quarterly profits for the past 5 years, apart from one very good quarter last year they are either loss making or low % profit making.

Quoting mayor (Reply 86):
As I recall, DL is not entirely inexperienced in the oil business. They owned a pipleline in the south up to the 80s.

I owned a bike in the 1980's but it doesn't make me an expert on the tour de France, just as Delta having owned a pipeline 30 years ago does not make them experts in refining.

Topic: RE: DL Losing Money In Refinery
Username: alfa164
Posted 2013-02-04 23:18:52 and read 8743 times.

Tugg, that is a great analysis!

Topic: RE: DL Losing Money In Refinery
Username: alfa164
Posted 2013-02-04 23:24:11 and read 8719 times.

Quoting bongodog1964 (Reply 106):
Quoting bongodog1964 (Reply 106):
Virtually all the profits in the oil business come from exploration and extraction, refining is a low margin activity as is distribution, hence why you presently see the oil majors extracting themselves from refining and distribution.

If hedging isn't good enough for an end user they need to start drilling holes in the ground, not buying a loss making, shut down rfefinery

You are right about refinery profits being marginal - but that doesn't mean anything about the costs to the consumer. The main purpose of buying the refinery was to eliminate the "crack spread" in purchasing refined products - not to make a profit on the refinery itself.

Again - if the refinery loses $100 million a year, but Delta saves $150 million a year on fuel costs... will you still be calling this a "losing investment"?

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-05 02:21:56 and read 8547 times.

Quoting alfa164 (Reply 108):
Again - if the refinery loses $100 million a year, but Delta saves $150 million a year on fuel costs... will you still be calling this a "losing investment"?

If the refinery loses $100 million then Delta fuel cost will be $100 million more than it otherwise would have been, and the refinery will be a losing investment. There is no accounting where DL loses money on the refinery and saves fuel dollars.

Topic: RE: DL Losing Money In Refinery
Username: bongodog1964
Posted 2013-02-05 04:27:24 and read 8205 times.

Quoting alfa164 (Reply 108):
Again - if the refinery loses $100 million a year, but Delta saves $150 million a year on fuel costs... will you still be calling this a "losing investment"?

Delta needs to buy in crude oil to operate the refinery, they then have the operating costs and the result is various fuels and oils which are worth exactly the present wholesale market price.

The only way that Delta can come out of this on the right side is if they can deal in oil and run a refinery more cost effectively than competing businesses. Meanwhile they have capital tied up in a non core business.

If by your example the price of Aviation fuel leaving Trainer destined for Delta is a few cents a gallon cheaper than the wholesale price resulting in a saving to Delta of $150m per year yet the refinery has lost $50m, where has this saving come from ?. It can only come from operating efficiencies as the input prices for the crude will potentially be the same for all the competition.

Topic: RE: DL Losing Money In Refinery
Username: alfa164
Posted 2013-02-05 04:59:20 and read 8159 times.

Quoting bongodog1964 (Reply 110):
Quoting bongodog1964 (Reply 110):
Delta needs to buy in crude oil to operate the refinery, they then have the operating costs and the result is various fuels and oils which are worth exactly the present wholesale market price.

No... they are costing the wholesale market price less the "crack spread" - that crack spread is baked into the current wholesale price. Delta doesn't pay that using its own refinery, because there is no middle-man - and that is how they are counting on savings to offset the cost of refinery operations.

You can argue all you want about whether it will pay off in the end - only time will tell that - but it was definitaly a bold move in a traditionbally stodgy industry (at least among the majors). I'll take DL's managemant over UA's or AA's or US any day!

Topic: RE: DL Losing Money In Refinery
Username: STT757
Posted 2013-02-05 05:07:08 and read 8152 times.

Quoting tugger (Reply 105):
While the demand for heavy, sour crude will be good news for Canada, the shale oil revolution in the U.S. will likely result in a steep drop in oil imports from Africa, mainly from OPEC’s biggest West African members, Nigeria and Angola. Both are suppliers of light, sweet crude. Since July 2010, the U.S. has cut its Nigerian imports by half, from more than 1 million barrels a day to 543,000 as of October 2012, according to the most recent data available through the EIA. Imports from Angola have dipped below 200,000 barrels a day, from an average of 513,000 in 2008. “By the second quarter of this year, we will stop importing West African light, sweet crude into the Gulf,” Morse predicts. Sometime before mid-2014, he says the U.S. and Canada will stop importing crude from West Africa altogether.

I think this is the reason for Hess closing their St.Croix refinery, one of the biggest in the Western hemisphere, they anticipate the coming collapse of African and Venezuelan oil exports to the US. My question is how are they going to get the Bakken fields oil to market? I know Buckeye mentioned trains to the former Chevron facility they purchased in Perth Amboy.

Topic: RE: DL Losing Money In Refinery
Username: enilria
Posted 2013-02-05 06:09:18 and read 8059 times.

Quoting Flighty (Reply 56):
Quoting enilria (Reply 46):
That means little.

It was actually a grammatically meaningless sentence. It seemed noncommittal, particularly in light of what you said -- that legally, he almost can't criticize the wisdom of ongoing strategy.
Quoting panamair (Reply 28):
Richard H. Anderson - CEO: More – actually – since we have actually closed on the refinery and spent a lot of time in the turnaround process, we have become more certain of how prudent that investment is for our Company.

Flighty: Correct, his comment could also mean that they have become more certain that the investment was not prudent. His statement *implies* that he thinks it was a prudent investment, but all it says is that financial performance has become more clear which means anything. It's actually interesting in its lack of clarity. If it truly was performing well you'd expect a stronger statement or even a comment such as "Trainer has saved Delta XXX million so far".

Anyway, it's early. I still think the most interesting thing is the departure of the programs's leader. The rest means little.

Topic: RE: DL Losing Money In Refinery
Username: bongodog1964
Posted 2013-02-05 06:30:29 and read 8010 times.

Quoting alfa164 (Reply 111):
No... they are costing the wholesale market price less the "crack spread" - that crack spread is baked into the current wholesale price. Delta doesn't pay that using its own refinery, because there is no middle-man - and that is how they are counting on savings to offset the cost of refinery operations.

The term "crack spread" is used in the oil industry as the difference between the price of the crude and the value of the produced products, you can't cost "less the crack spread" as the "crack spread" is there to cover the cost of running the refinery.

Delta will be paying "the crack spread" unless they have found a way of borrowing the purchase price of the refinery at zero interest, and have have no running costs.

They might theoretically have a lower "crack spread" than existing suppliers, but they would have to be running a very slick operation in a state of the art facility to do so.

Topic: RE: DL Losing Money In Refinery
Username: exFWAOONW
Posted 2013-02-05 07:07:17 and read 7918 times.

Quoting mcg (Reply 69):
Don't you think that if jet fuel was more profitable than gasoline Conoco would have adjusted Trainer's output to produce more jet?

As others have stated above, Delta doesn't have to make a profit on the fuel, it just has to cost a little less.

No one has posted solid numbers on the Trainer facility (and I doubt Conoco isn't telling) so Conoco could just justify closing this refinery to drive up prices so they can make MORE from the remaining refineries. The two companies have two outlooks on the same thing.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-05 07:07:49 and read 7920 times.

Quoting tugger (Reply 105):
the two companies have opposing definitions for what makes an investment "profitable" for the company's needs.

Sorry, there is only one definition of profitable. Profitable is when the total revenue from the refinery is greater than the total cost of operating it. It doesn't matter who owns this business, to be a successful investment total revenue must be greater than total cost by enough to justify the capital invested.

Topic: RE: DL Losing Money In Refinery
Username: PSU.DTW.SCE
Posted 2013-02-05 07:08:24 and read 7930 times.

Quoting enilria (Reply 113):
It's actually interesting in its lack of clarity. If it truly was performing well you'd expect a stronger statement or even a comment such as "Trainer has saved Delta XXX million so far".

I think DL has actually been pretty clear in its statement of current performance and expected performance.

DL clearly stated the Q4 performance of Trainer and it lost $63M, primarily due to start-up costs and reduced production due to Sandy.

DL clearly stated the expect Trainer to make a $280M profit in 2013.

Anderson's comments where in line with every answer thats ever been given by any executive during analyst Q&A: appropriately vague and basically amounting to corporate non-speak. CEOs almost never make a defining statement one way or another. Some of that is due to risk mitigation, public disclosure, and the very nature of how these things impact stock performance or the financial markets. Its annoying, but this not unique just to DL or the airline industry.

Now, for the fact that DL has gone on record to say they expect a $280M profit in 2013, now that gives everyone something to hold them accountable for throughout the next year. DL has detailed analysis and a business behind this number, they didn't just make it up. If they don't achieve this metric, they will have to explain this to the shareholders.

Quoting PassedV1 (Reply 101):
Trainer to Conoco and Trainer to Delta seem fundamentally different to me because of where they fit into each business.

You bring up a very valid point. Each business have a different tolerance and threshold for how their invest their capital or what they allocate to SG&A or essentially the cost of doing business.

Topic: RE: DL Losing Money In Refinery
Username: STT757
Posted 2013-02-05 07:40:29 and read 7854 times.



The future.

Topic: RE: DL Losing Money In Refinery
Username: EricR
Posted 2013-02-05 07:43:58 and read 7849 times.

Quoting exFWAOONW (Reply 115):
As others have stated above, Delta doesn't have to make a profit on the fuel, it just has to cost a little less.


And this strategy works fine as long as fuel prices are above the breakeven point on the facility. If fuel prices remain reasonable or below the breakeven point on the facility, then DL is paying more for the fuel by producing it themselves than they would if they purchased it on the open market. Thus far, prices have not worked in DL's favor.

The way I see it, the refinery could work in DL's favor for several months of the year (when fuel climbs during peak travel seasons), but lose money during when fuel prices drop below the breakeven point of the facility. The question remains whether the facility will work in DL's favor over the course of a full year.

Quoting exFWAOONW (Reply 115):
so Conoco could just justify closing this refinery to drive up prices so they can make MORE from the remaining refineries.


If this was Conoco's objective (to drive up prices), then it would make no sense for COP to sell the refinery to DL so DL could turn around an re-open the facility.

Quoting exFWAOONW (Reply 115):
No one has posted solid numbers on the Trainer facility (and I doubt Conoco isn't telling)
Quoting AeroWesty (Reply 99):
LOL, word for word from the OP's link. Don't you guys ever read the links?



What difference would it make to you whether Conoco was losing $125 million per year, $100 million per year, or $93.5 million per year on the facility? The fact of the matter is that is was a losing operation, COP closed the facility well before it was sold due to its poor performance, and DL has lost money on the facility since it was opened.

Quoting mayor (Reply 102):
And yet, DL has already stated that they will start using product from North Dakota for their crude. Is this not cheaper and easier to refine that what they're using now?


If it were this easy, then why didn't Conoco do this to make the refinery profitable?

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-05 08:15:12 and read 7773 times.

Quoting bongodog1964 (Reply 106):
To a great extent pre 2005 isn't relevant as thats the year that ch11 reorganisation saw the existing shareholders more or less wiped out.

Only irrelevant to you.

Quoting bongodog1964 (Reply 106):
I owned a bike in the 1980's but it doesn't make me an expert on the tour de France, just as Delta having owned a pipeline 30 years ago does not make them experts in refining.

How nice for you. Now, how about reading what I actually said. I said they weren't inexperienced in the "oil" industry because of the pipeline. I never mentioned that they were experienced in refining. Anyway, they have experts, working for Monroe, that ARE experienced in the oil industry.

Quoting EricR (Reply 119):
If it were this easy, then why didn't Conoco do this to make the refinery profitable?

Why don't you tell me? That's why I asked the question.....to get an answer.......not to receive another question.

Topic: RE: DL Losing Money In Refinery
Username: tugger
Posted 2013-02-05 08:29:26 and read 7725 times.

Quoting mcg (Reply 116):
Sorry, there is only one definition of profitable. Profitable is when the total revenue from the refinery is greater than the total cost of operating it. It doesn't matter who owns this business, to be a successful investment total revenue must be greater than total cost by enough to justify the capital invested.

You are right and you are wrong. There is a reason why I put the word "Profitable" in quotes. The difference is what does the investment mean overall to the corporate operation, as noted above some business operate flight departments that are similar to airlines, they do not run them for a "profit" but it is decided that they assist the overall operation's profitability. The unit within a company does not have to make a profit on its own in order for it to be a profitable investment for the corporation (yes it is desirable but sometimes not the primary goal of the investment). The revenue from the investment does not have to be greater than the costs, the impact it has on other costs within a company are equally important . How do you think a company could otherwise justify R&D? They are almost solely a cost to a company however from that they derive future profits for other divisions and elements within a company (R&D almost never gets the actual glory of making money from what they developed). There are many operations within every company that do not generate a profit from the "investment" yet they assist the company overall to meet its goals.

You are looking at it far to simplistically.

Quoting EricR (Reply 119):
If this was Conoco's objective (to drive up prices), then it would make no sense for COP to sell the refinery to DL so DL could turn around an re-open the facility.

Well a few things: One, we don't know the sellers actual goals. Two, there are costs involved in shutting the operation down themselves versus the cash they get from selling it. Three, they may have sold it thinking that Delta was the best route to achieve both things.

Tugg

Topic: RE: DL Losing Money In Refinery
Username: enilria
Posted 2013-02-05 08:39:32 and read 7724 times.

Quoting mcg (Reply 116):
If they don't achieve this metric, they will have to explain this to the shareholders.
Quoting PSU.DTW.SCE (Reply 117):
DL clearly stated the expect Trainer to make a $280M profit in 2013.

Keep in mind that since DL is basically Trainer's only large customer, this "profit" is achieved by selling Delta fuel above cost. The price Delta pays for fuel from Trainer is a highly manipulable inter-company transaction. So, we will never really know the answer.

Quoting PSU.DTW.SCE (Reply 117):
Some of that is due to risk mitigation, public disclosure, and the very nature of how these things impact stock performance or the financial markets. Its annoying, but this not unique just to DL or the airline industry.

Agreed. Few people understand that. I'm glad you are one. It's more interesting when CEO's make rare definitive statements.

Quoting PSU.DTW.SCE (Reply 117):
DL has detailed analysis and a business behind this number, they didn't just make it up.

Analysis created by the guy who just left.

Topic: RE: DL Losing Money In Refinery
Username: bongodog1964
Posted 2013-02-05 09:05:47 and read 7640 times.

Quoting mayor (Reply 120):
Quoting bongodog1964 (Reply 106):
To a great extent pre 2005 isn't relevant as thats the year that ch11 reorganisation saw the existing shareholders more or less wiped out.

Only irrelevant to you.

And to all the investors who found their Delta shares worthless.

Topic: RE: DL Losing Money In Refinery
Username: diverdave
Posted 2013-02-05 09:16:40 and read 7606 times.

Quoting enilria (Reply 122):
Keep in mind that since DL is basically Trainer's only large customer, this "profit" is achieved by selling Delta fuel above cost. The price Delta pays for fuel from Trainer is a highly manipulable inter-company transaction. So, we will never really know the answer.

The refinery is optimized for jet fuel, but still produces other petroleum products. Those will be traded to other companies in exchange for jet fuel.

http://news.delta.com/index.php?s=43&item=1601

Delta wants to capture the crack spread. Problem is, the crack spread goes all over the place. Given the trend to shutter refineries, that is bullish for the crack spread. Look at what happened to gasoline prices on the west coast a few months back after some refinery outages.

Delta also wants to capture the spread between WTI and Brent. That spread has narrowed somewhat as capacity has been added to get oil out of storage in Cushing and out to the Gulf Coast. As noted, it can be taken out on rail cars but that is pricey per barrel.

But the spread should widen again as oil production in North Dakota continues to increase.

All in all, you could consider it another form of arbitrage. WN was very successful at oil futures arbitrage for a long time. Then all of a sudden, they weren't.  

David

[Edited 2013-02-05 09:18:27]

Topic: RE: DL Losing Money In Refinery
Username: MaverickM11
Posted 2013-02-05 09:46:25 and read 7515 times.

Quoting diverdave (Reply 124):
All in all, you could consider it another form of arbitrage. WN was very successful at oil futures arbitrage for a long time. Then all of a sudden, they weren't.

And I'm sure a refinery is much more liquid than the WN positions that went sour 

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-05 09:51:59 and read 7495 times.

Quoting MaverickM11 (Reply 125):
And I'm sure a refinery is much more liquid than the WN positions that went sour 

I realize you meant this as a snark, but actually, it's true. Hard assets are usually easier to put up for collateral for fast money than unwinding a complex arbitrage that's gone against you.

Topic: RE: DL Losing Money In Refinery
Username: EricR
Posted 2013-02-05 10:19:19 and read 7439 times.

Quoting mayor (Reply 120):
Why don't you tell me? That's why I asked the question.....to get an answer.......not to receive another question.


Sorry, I should have been more clear. Yes, the product from the Bakken is cheaper than what COP used. However, COP received its product via ship. DL will be receiving its product by rail. Transportation costs per unit is much lower via ship than via rail. Therefore, while the product from the Bakken will be cheaper, the transportation costs to get this product to Trainer will be much higher.

Also has DL actually committed to getting their oil from the Bakken? The last I heard is that they were only exploring this as an option.

Topic: RE: DL Losing Money In Refinery
Username: MaverickM11
Posted 2013-02-05 10:19:34 and read 7444 times.

Quoting AeroWesty (Reply 126):

I realize you meant this as a snark, but actually, it's true. Hard assets are usually easier to put up for collateral for fast money than unwinding a complex arbitrage that's gone against you.

Even an asset no one wants, versus a huge fuel hedge market?

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-05 10:27:11 and read 7408 times.

Quoting MaverickM11 (Reply 128):
Even an asset no one wants, versus a huge fuel hedge market?

Ever hear of junk bonds? Those were largely sold without collateral. Billions and billions of dollars of them. And once again, Trainer isn't an asset no one wants, no matter how many times you or others state that fallacy. When Conoco was shedding it, there were five bidders, three who wanted the facility for storage, as previously stated. Trainer has tremendous value even as a non-operating facility. In this day and age, it's not that easy to go out and get the permits to build a petroleum storage unit that's connected to the NE pipeline system.

Topic: RE: DL Losing Money In Refinery
Username: diverdave
Posted 2013-02-05 11:45:53 and read 7279 times.

Quoting MaverickM11 (Reply 125):
And I'm sure a refinery is much more liquid than the WN positions that went sour

Well, they paid $150 million plus some costs for upgrades which I cannot find any numbers for.

The operating costs should be somewhat reduced as I believe Delta got some concessions from the unions.

So if you figure $250 million invested, that's not a huge capital investment in the airline biz. It's certainly far less than the Delta pension deficit which exceeds $10 billion if I recall correctly. Haven't some airlines lost more than that on fuel hedges in one calendar year or less?

David

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-05 12:16:30 and read 7208 times.

Quoting bongodog1964 (Reply 114):
you can't cost "less the crack spread" as the "crack spread" is there to cover the cost of running the refinery.

And no profit?

What if a hypothetical refinery says... ''OK Delta, we'll buy the oil and refine it for you and charge you only what it costs us to do that. FREE! We won't charge you anything for the service. Just 'the cost of running the refinery'. No profit, just costs!! Deal?''

That hypothetical refinery is Delta's own refinery...Trainer/Monroe LLC

The profit that 'any other refinery' would make 'spreading the crack'   is what Delta will be keeping for itself. Delta is cutting out the middle man's profit, not the expenses in acquiring and refining the oil. In effect, you CAN cost less than the 'crack spread' because you're not paying the marked up retail price, but the in-house at-cost price. Delta saves the money that would otherwise be paid as profit to an outside refinery.

Any simpler and I'd feel as if I'm talking to 3rd graders.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-05 12:23:12 and read 7194 times.

Quoting EricR (Reply 127):
Also has DL actually committed to getting their oil from the Bakken? The last I heard is that they were only exploring this as an option.

I heard it somewhere (probably on here) but couldn't tell you for sure.

Topic: RE: DL Losing Money In Refinery
Username: rampart
Posted 2013-02-05 12:24:58 and read 7188 times.

Quoting STT757 (Reply 118):


The future.

No, it would be this.

They already borrowed their logo.  

-Rampart

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-05 12:30:03 and read 7171 times.

Quoting rampart (Reply 133):
Quoting STT757 (Reply 118):


The future.

No, it would be this.

They already borrowed their logo.

Well, the Widget has been around since the 60s.........how long has the CITGO logo been around?

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-05 12:37:52 and read 7154 times.

Quoting rwy04lga (Reply 131):
What if a hypothetical refinery says... ''OK Delta, we'll buy the oil and refine it for you and charge you only what it costs us to do that. FREE! We won't charge you anything for the service. Just 'the cost of running the refinery'. No profit, just costs!! Deal?''

That hypothetical refinery is Delta's own refinery...Trainer/Monroe LLC

The profit that 'any other refinery' would make 'spreading the crack'   is what Delta will be keeping for itself. Delta is cutting out the middle man's profit, not the expenses in acquiring and refining the oil.

Sorry, not exactly. Trainer has no crack spread. The value of each gallon of product is less than the cost of the oil and the cost to transform the oil into jet or gas or diesel or fuel oil. Delta fuel cost would be lower if they simply bought jet fuel from the local distributor. Remember, Delta loses money on every gallon produced.

Topic: RE: DL Losing Money In Refinery
Username: tugger
Posted 2013-02-05 12:41:49 and read 7136 times.

Quoting mcg (Reply 135):
Trainer has no crack spread. The value of each gallon of product is less than the cost of the oil and the cost to transform the oil into jet or gas or diesel or fuel oil.

And you know this for a fact how exactly?

Or are you guessing and making an assumption from the statement "we lost money last quarter" (which is a different animal)?

Tugg

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-05 12:53:04 and read 7102 times.

Quoting mcg (Reply 135):
Sorry, not exactly.

How did I guess?  
Quoting mcg (Reply 135):
Remember, Delta loses money on every gallon produced.

You, Sir, are delusional.


Remember THIS, Delta made 1.6Billion profit last year. How'd YOUR pet airline make out? ? ? ? What? Oh well, maybe next year.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-05 13:47:02 and read 7009 times.

Quoting tugger (Reply 136):
Quoting mcg (Reply 135):
Trainer has no crack spread. The value of each gallon of product is less than the cost of the oil and the cost to transform the oil into jet or gas or diesel or fuel oil.

And you know this for a fact how exactly?

Or are you guessing and making an assumption from the statement "we lost money last quarter" (which is a different animal)?

Tugg

It's not that hard really. All you've got to do is look at last earning release and you'll see the refinery lost $63 million last quarter.

Topic: RE: DL Losing Money In Refinery
Username: tugger
Posted 2013-02-05 13:52:41 and read 6990 times.

Quoting mcg (Reply 138):
It's not that hard really. All you've got to do is look at last earning release and you'll see the refinery lost $63 million last quarter.

So you are basing it on that simple statement. You really have no idea what costs were attributed to that figure. Do you know the actual refining costs for that facility to take one-plus gallon of oil and produce one gallon of fuel? Exclusive of any loan costs or management costs or weather related costs or.... you get the picture. "Profit" is just not that simple.

Tugg

Topic: RE: DL Losing Money In Refinery
Username: bongodog1964
Posted 2013-02-05 14:21:48 and read 6924 times.

Quoting tugger (Reply 139):
Quoting mcg (Reply 138):It's not that hard really. All you've got to do is look at last earning release and you'll see the refinery lost $63 million last quarter.So you are basing it on that simple statement. You really have no idea what costs were attributed to that figure. Do you know the actual refining costs for that facility to take one-plus gallon of oil and produce one gallon of fuel? Exclusive of any loan costs or management costs or weather related costs or.... you get the picture. "Profit" is just not that simple. Tugg

"Profit" is that simple, its only made complicated by accountants and executives who set out to deceive. Sooner or later you have to end up with more money than you started with.

Topic: RE: DL Losing Money In Refinery
Username: tugger
Posted 2013-02-05 14:28:51 and read 6900 times.

Quoting bongodog1964 (Reply 140):
"Profit" is that simple, its only made complicated by accountants and executives who set out to deceive. Sooner or later you have to end up with more money than you started with.

But again you are not understand it in this situation. Is this investment profitable for the corporation? Now in the long term. You mention how it is "only complicated when....", for this loss did Delta assign certain management costs to it or did Delta absorb those costs? Did the facility spend extra to fix or improve things? Did they bear part of the funding costs or did Delta take that cost? In a corporation where a cost is best assigned can often be a question that must be asked and viewed through the lens of what is best overall for the corporation.

Tugg

Topic: RE: DL Losing Money In Refinery
Username: rampart
Posted 2013-02-05 14:46:42 and read 6873 times.

Quoting mayor (Reply 134):
Well, the Widget has been around since the 60s.........how long has the CITGO logo been around?

The current Citgo logo that looks a lot like Delta's current equilateral triangle logo is from 1965. Prior to the current Delta logo, the DL widget was more of a wedge shape, as you know, revived in 1959. Cities Service had used a triangle in the logo since the 1954, and a tri-lobe design prior to that. Citgo itself has been around since 1910. I know Delta Air Services has (naturally) a triangle-shaped logo from their founding in the1920s. But I was specifically comparing the current orange-red equilateral "Citgo" DL logo (I'm not the first one to call it that) with the existing Citgo logo.

-Rampart

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-05 15:05:02 and read 6825 times.

Quoting rampart (Reply 142):
Prior to the current Delta logo, the DL widget was more of a wedge shape, as you know, revived in 1959.

It's still the "Widget", just colored differently. The shape hasn't changed.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-05 15:11:35 and read 6810 times.

Quoting tugger (Reply 141):
Quoting bongodog1964 (Reply 140):
"Profit" is that simple, its only made complicated by accountants and executives who set out to deceive. Sooner or later you have to end up with more money than you started with.

But again you are not understand it in this situation. Is this investment profitable for the corporation? Now in the long term. You mention how it is "only complicated when....", for this loss did Delta assign certain management costs to it or did Delta absorb those costs? Did the facility spend extra to fix or improve things? Did they bear part of the funding costs or did Delta take that cost? In a corporation where a cost is best assigned can often be a question that must be asked and viewed through the lens of what is best overall for the corporation.

In the context of a quarterly earning release the phrase "the refinery produced a $63 million net loss for the quarter" better be pretty darn close to GAAP. Is there some judgement about allocating corporate costs?, sure but whatever allocation has to pass judgement from the auditors. If anything DL would seem likely to under-allocate costs to Trainer in order to try to polish the........apple.

Topic: RE: DL Losing Money In Refinery
Username: brilondon
Posted 2013-02-05 15:12:20 and read 6804 times.

Quoting UALWN (Reply 70):

Quoting brilondon (Reply 66):
they probably did not intend to sell fuel to other people.
Quoting exFWAOONW (Reply 68):
kerosene (Jet A is similar) is much easier to produce from crude and tweeking a refinery to up the production of kerosene based products might actually allow the plant to operate at a profit.

According to this report

http://blogs.platts.com/2013/01/22/delta_trainer/

jet A only represents 20% of the production of the refinery. DL wants to increase that to one third, but many people are skeptical about this being possible. So, yes, DL will have to sell fuel to other people.
Quoting UALWN (Reply 72):

Only of about 20% of the end product. See my post above.

Do they not need to fuel their vehicles at the New York area airports?

Quoting UALWN (Reply 75):

Quoting AeroWesty (Reply 73):
By extension, already recognized in my reply #64, and didn't need repeating.

Then why do you say in your reply #71 that DL is both the producer and the consumer of the end product, if it really isn't?

That is the reason given when they purchased the refinery was to hedge against the soaring cost of fuel. Both for their aircraft and the vehicles they use to service the aircraft.

The blog you quoted is unfounded and just an opinion of the writer of the blog and not backed up by any facts.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-05 15:13:58 and read 6809 times.

Quoting rwy04lga (Reply 137):
Quoting mcg (Reply 135):
Remember, Delta loses money on every gallon produced.

You, Sir, are delusional.


Please explain, I'm simply noting DL's disclosure that the refinery lost $63 million last quarter. Did you read the earnings release? Did you see and understand this phrase: "the refinery produced a $63 million net loss for the quarter"?

Topic: RE: DL Losing Money In Refinery
Username: tugger
Posted 2013-02-05 15:22:32 and read 6777 times.

Quoting mcg (Reply 144):
If anything DL would seem likely to under-allocate costs to Trainer in order to try to polish the........apple.

Not necessarily. The guy that lead the deal is gone, dump costs on him and let he who is now gone be blamed for all allowable expenses. Sure it follows GAAP, as long as you justify it. As long as you can it can fit GAAP.

Tugg

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-05 15:35:12 and read 6762 times.

Quoting mcg (Reply 144):
"the refinery produced a $63 million net loss for the quarter" better be pretty darn close to GAAP. Is there some judgement about allocating corporate costs?, sure but whatever allocation has to pass judgement from the auditors

GAAP allows for some very creative accounting. For instance, say you are a MNC headquartered in Europe with a manufacturing subsidiary in China which produces widgets made from steel, supplying a sales office in the Americas. You may set an intercompany transfer price in whichever currency you'd like which is immune to currency and steel price fluctuations, since the base costs, including any hedging strategies you may set up, still all rolls up to the balance sheet reported on a consolidated basis by the HQ in Europe.

This type of accounting may make it appear that your sales office in the Americas loses money on every transaction if the price of steel collapses mid-year, forcing them to sell widgets for less than their cost in comparison to a native US manufacturer who may be able to manufacture and sell widgets for using market prices for steel.

Anything done on an intercompany pricing basis is suspect without knowing what goes into those numbers. Every single dollar, euro, etc.

N.B. Intercompany pricing is usually adjusted only once per year, so even if you figure out what the 2012 rate is, it may be entirely different for 2013.

Now, I'm not saying that this is what is happening with Trainer, but it *could* be. Delta *could* have set a price for which it will record its fuel price for the output from Trainer that it uses, allowing Trainer to take the profit/loss based on variances in the cost of raw materials + refining + delivery to itself as an end user. This is very common in vertically integrated business models.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-05 16:09:58 and read 6725 times.

Quoting AeroWesty (Reply 148):
Now, I'm not saying that this is what is happening with Trainer, but it *could* be. Delta *could* have set a price for which it will record its fuel price for the output from Trainer that it uses, allowing Trainer to take the profit/loss based on variances in the cost of raw materials + refining + delivery to itself as an end user. This is very common in vertically integrated business models.

Given that DL is disclosing quarterly operating results for the refinery, there inter-company flexability is substantially reduced. In the example in the post above, I'd bet the company involved is not disclosing the results of the sales office on a quarterly basis.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-05 16:35:55 and read 6671 times.

Quoting mcg (Reply 149):
Given that DL is disclosing quarterly operating results for the refinery, there inter-company flexability is substantially reduced.

Nope. GAAP reporting is GAAP reporting. All GAAP stands for is "Generally Accepted Accounting Principles". Most nations are moving to IFRS, though.

Quoting mcg (Reply 149):
In the example in the post above, I'd bet the company involved is not disclosing the results of the sales office on a quarterly basis.

You'd lose your shirt on that bet if you bet too much. I know from personally having been involved in financial reporting for exactly the scenario I put forth that those types of numbers are calculated and presented exactly in that manner. It's a very similar but somewhat different set up as to how AF/KL allocates expenses to divisions dependent upon taxation costs, making KL, some say, appear without a truly realistic figure for its base operating costs charged against its revenue (I forget offhand if it makes KL's profit appear artificially high or low though).

Since GAAP also includes mark-to-market rules, we don't even know if Trainer posted some of its loss from having oil under its control which it paid more for than it was worth on the day financial statements closed. That would become simply a paper loss which may increase or decrease based both upon the market price of oil and what the final contract price for its finished goods could be, if Trainer is set up on a futures basis with Delta.

Until you know how every component is a number is priced, you can't point to a single number and say, "see, I told you so!" That's why several posts above I asked for the real numbers, which no one has so far been able to produce, and no one ever will be able to.

The only thing we have working for us in this vertically integrated scenario is balancing what we think Trainer is paying for raw materials, its profit reported, and what Delta reports as its fuel cost. We saw that mechanism at work when Southwest credited hedging profits against its fuel costs while every other airline took hedging profits in as investment gains a few years back. Both models met GAAP even though the results were miles apart.

Topic: RE: DL Losing Money In Refinery
Username: alfa164
Posted 2013-02-05 16:58:07 and read 6598 times.

Quoting tugger (Reply 136):
Quoting mcg (Reply 135):Trainer has no crack spread. The value of each gallon of product is less than the cost of the oil and the cost to transform the oil into jet or gas or diesel or fuel oil.
And you know this for a fact how exactly?

Or are you guessing and making an assumption from the statement "we lost money last quarter" (which is a different animal)?

Tugg

Unflotunately, Tugg, using logic and facts will have no effect on someone who clearly has a "hard-on" for DL. There will always be Delta haters - just like there are AA haters and UA haters - who spew their opinions without any analysis of the facts.

Like I said before - I'd take DL's management in my company before I would even consider someone from AA, UA, or US. I'll bet none of these detractors put their own money into stock with these otehr airlines!

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-05 16:59:37 and read 6658 times.

Quoting mcg (Reply 149):
there
Quoting mcg (Reply 149):
flexability

Don't drag your credibility down further.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-05 17:22:30 and read 6596 times.

Quoting AeroWesty (Reply 150):
The only thing we have working for us in this vertically integrated scenario is balancing what we think Trainer is paying for raw materials, its profit reported, and what Delta reports as its fuel cost.

The only thing we have going for us is that Conoco's CFO stated prior to the acquisition by DL that the Trainer plant was 'not profitable' and DL has disclosed that the losses continue. My point is only that none of the evidence suggests that the Trainer plant is having the intended effect of lower Delta's fuel cost. All the arguments that it is lowering fuel cost are conjecture.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-05 17:36:02 and read 6560 times.

Quoting mcg (Reply 153):
The only thing we have going for us is that Conoco's CFO stated prior to the acquisition by DL that the Trainer plant was 'not profitable' and DL has disclosed that the losses continue.

Let me correct two points in that sentence:

1) If you go back and read all of the articles and press releases by those with intimate knowledge they state something akin to Trainer would have needed substantial investment to "remain competitive", without disclosing what that investment would have to be, nor what they expected to gain from further investment.

2) Delta has disclosed that under its management and accounting reporting rules that Trainer lost money during its startup months, some of that was due to Sandy having affected the pipeline network. Delta did not state that Conoco's losses continued (that would be impossible, since Conoco didn't own or control Trainer during the reporting period). Delta's losses were of Delta's own doing, based upon how the plant was able to operate during the period according to Delta's management and financial reporting guidelines.

Also, as I pointed out earlier, there could have been a strategic play at work, as Sunoco was taking refinery capacity offline as well, causing the price for end product to rise artificially in comparison to where it could have been.

Even if Trainer is loss-making for Delta, if having that capacity back online tempers the overall cost of refined products, it could be seen as a win. Bottom line: Trainer simply hasn't been open and operating long enough, nor do we know enough about how it's accounted for financially, to say it's a success or failure one way or the other right now.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-05 17:52:38 and read 6530 times.

Quoting mcg (Reply 153):
My point is only that none of the evidence suggests that the Trainer plant is having the intended effect of lower Delta's fuel cost. All the arguments that it is lowering fuel cost are conjecture.

It's ONLY been 1 quarter, for heaven's sake!  

Topic: RE: DL Losing Money In Refinery
Username: rampart
Posted 2013-02-05 17:58:00 and read 6526 times.

Quoting mayor (Reply 143):
It's still the "Widget", just colored differently. The shape hasn't changed.

I know. I'm just having fun with it. The red and orange-red widget currently looks more like the Citgo than the old red and blue widget, that much is true. Do you remember the thread when DL came out with the new logo? I think several minutes elapsed before someone posted a picture of the Citgo sign outside of Fenway.

At least we aren't up in arms about refineries.

-Rampart

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-05 18:04:32 and read 6504 times.

Quoting rampart (Reply 156):

Well, actually, I think the current livery would work well with the old Widget, either tilted or upright.

Topic: RE: DL Losing Money In Refinery
Username: PSU.DTW.SCE
Posted 2013-02-05 18:47:15 and read 6432 times.

Quoting enilria (Reply 122):
Agreed. Few people understand that. I'm glad you are one. It's more interesting when CEO's make rare definitive statements.

It is extremely rare to have them make any definitive statements, or any statements that have not been throughly sanitized, reviewed by the BOD, or approved by the analyst relations group.

Quoting enilria (Reply 122):
Analysis created by the guy who just left.

True, however the analysis and business case was done by his staff and/or Finance and likely throughly reviewed by many. The buck would stop with him, but he didn't do it all himself in a vaccum.

Plus for the fact they released projections for 2013 just last week, one would think they would've reviewed the projections more recently and now they've gone on record after this guy's departure so now someone else is accountable.

Quoting AeroWesty (Reply 154):
Even if Trainer is loss-making for Delta, if having that capacity back online tempers the overall cost of refined products, it could be seen as a win. Bottom line: Trainer simply hasn't been open and operating long enough, nor do we know enough about how it's accounted for financially, to say it's a success or failure one way or the other right now.

Thank you!

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-06 06:47:30 and read 6102 times.

Quoting brilondon (Reply 145):
Do they not need to fuel their vehicles at the New York area airports?
Quoting brilondon (Reply 145):
Both for their aircraft and the vehicles they use to service the aircraft.

Yeah, I'm sure they need all the gasoline produced in their refinery to fuel their ground vehicles in the New York area.  
Quoting brilondon (Reply 145):
The blog you quoted is unfounded and just an opinion of the writer of the blog and not backed up by any facts.

Actually the article (and the articles it links to) contains many facts, including that Delta lost $63M in Q4 2012 in the refinery. And, by the way, it is a little bit more than a "blog." Seeking Alpha is a leading stock analysis web site. This doesn't mean they are always right, of course.

Topic: RE: DL Losing Money In Refinery
Username: tugger
Posted 2013-02-06 08:39:58 and read 5993 times.

The east coast is now starting to see Bakken oil and it is expected to increase in the future. Even with the current transport costs, it is cheaper than other oil form across the Atlantic. Just wait until pipeline are completed in a few years.

Quote:
Last February, Sunoco (SUN) was desperate to find a buyer for its outdated 140-year-old South Philadelphia refinery, one of the oldest and biggest in the country. It was ready to shut the thing down before buyout firm Carlyle jumped in as a partner in July, pledging millions in investment. Now the refinery—which is capable of processing 330,000 barrels of oil a day, or roughly a quarter of the East Coast’s refining capacity—is building a high-speed rail unloader to move oil from trains and right into the refinery itself. According to Citi’s Lee, the South Philadelphia refinery is set to increase the amount of Bakken crude it takes to 180,000 barrels per day by the end of 2013, more than half the oil it processes.
[...]
At $93.39 a barrel, the spot price of Bakken crude is trading about $3 below the price of WTI and more than $23 below the price of Brent. Using a combination of rail and barges, it costs anywhere from $14 to $16 a barrel to get Bakken crude to the East Coast. At today’s prices, that still leaves a barrel of Bakken crude $7 cheaper than imported Brent, plenty of room to improve margins for refiners. “East Coast refiners will make that trade all day,” says Gheit. “Every dollar saved is a dollar made.”
http://www.businessweek.com/articles...inally-hits-the-east-coast#r=hp-ls

Another decent article on the facility and its issues and potential is here:
http://www.reuters.com/article/2012/...elta-trainer-idUSLNE88N01R20120924

Tugg

Topic: RE: DL Losing Money In Refinery
Username: enilria
Posted 2013-02-06 08:52:54 and read 5953 times.

Quoting PSU.DTW.SCE (Reply 158):
Quoting enilria (Reply 122):
Agreed. Few people understand that. I'm glad you are one. It's more interesting when CEO's make rare definitive statements.

It is extremely rare to have them make any definitive statements, or any statements that have not been throughly sanitized, reviewed by the BOD, or approved by the analyst relations group.

That's what is great about the analyst calls. Occasionally they get flustered and something slips out.  
Quoting PSU.DTW.SCE (Reply 158):
Quoting enilria (Reply 122):
Analysis created by the guy who just left.

True, however the analysis and business case was done by his staff and/or Finance and likely throughly reviewed by many. The buck would stop with him, but he didn't do it all himself in a vaccum.

Plus for the fact they released projections for 2013 just last week, one would think they would've reviewed the projections more recently and now they've gone on record after this guy's departure so now someone else is accountable.

Well, as I said earlier, that guy was clearly the internal "champion" of the program. If they do not appoint another person to champion it internally, which they have yet to do after two months apparently, the program is in trouble since something that far off the reservation for an airline must have somebody like that.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-06 09:21:02 and read 5909 times.

Quoting enilria (Reply 161):
If they do not appoint another person to champion it internally, which they have yet to do after two months apparently, the program is in trouble since something that far off the reservation for an airline must have somebody like that.

I don't know if I'd fully agree with that, but I've no inside knowledge of the situation. I've rarely found people who are "do-ers" be the same person who can patiently nurture something along. Sort of like how entrepreneurs are the worst people to handle what they founded long-term. It could very well be that the whomever the GM of Monroe is has the access and a high enough profile within the Delta organization to report to and respond to the right people at the right level in the executive suites. This is an extremely important endeavor for Delta. It's got plenty of eyes on it.

Topic: RE: DL Losing Money In Refinery
Username: SSTeve
Posted 2013-02-06 09:42:23 and read 5856 times.

Quoting mcg (Reply 109):

If the refinery loses $100 million then Delta fuel cost will be $100 million more than it otherwise would have been, and the refinery will be a losing investment. There is no accounting where DL loses money on the refinery and saves fuel dollars.

I'm not sure if this is true for Delta-- they could actually break out that accounting, as far as I know (because I don't.) But I'd guess that with the focus on this new refinery deal, they might actually break that out in the future. In the Sandy quarter with the refinery starting up, they may have gotten no discount to market rate for Jet Fuel, so that sort of figure may well have been moot.

I will say, however, that I work for one unit of a large corporation that has long been branded an unprofitable albatross, and of course, we're a supplier for another unit-- a profitable golden child-- and the muckymucks don't break out what the price break is for internal purchases. Wall street has long called for us to be spun off-- simple accounting doesn't necessarily make things look as beneficial as they are.

Topic: RE: DL Losing Money In Refinery
Username: diverdave
Posted 2013-02-06 11:23:40 and read 5735 times.

Quoting tugger (Reply 160):
The east coast is now starting to see Bakken oil and it is expected to increase in the future. Even with the current transport costs, it is cheaper than other oil form across the Atlantic. Just wait until pipeline are completed in a few years.

The pipelines will ease the glut at Cushing, OK and elsewhere. That means that the spread between WTI and Brent will narrow, but it will be WTI moving towards the Brent price.

Folks in many parts of this country are getting a break on gasoline prices thanks to the glut at Cushing. New pipelines will ease the glut, WTI will move towards the global oil market pricing, and domestic gasoline prices will go up.

David

Topic: RE: DL Losing Money In Refinery
Username: justloveplanes
Posted 2013-02-06 12:09:06 and read 5687 times.

Quoting bongodog1964 (Reply 4):
The thread isn't talking about losses from flying activities, its specifically about losses from the recently purchased refinery. It appears that the physical set up of the refinery results in it requiring African crude oil, that sells at quite a premium to Brent crude. This then pushes up expenditure and results in an operating loss.

I believe that may have been the original setup. Delta was investing in optimizing the split for jet fuel and a long term supply from BP to lock in crude costs. So article logic may be based on the pre-Delta configuration.

Quoting wjcandee (Reply 10):

Delta, a public company with gargantuan disclosure obligations, has just said it expects to make $280 million this year in savings by owning the refinery.

Good point

Quoting panamair (Reply 28):
On the same call, Richard Anderson was asked if he had any regrets about the Trainer transaction (given the Sandy-related loss):

Linda Loyd - Philadelphia Inquirer: So you are still very satisfied with your business decision to buy a refinery?

Richard H. Anderson - CEO: More – actually – since we have actually closed on the refinery and spent a lot of time in the turnaround process, we have become more certain of how prudent that investment is for our Company.

Note turnaround process, results are muddied by that for all of 2012.

Quoting MaverickM11 (Reply 32):
   I just don't get how this is supposed to work. Monroe could sell the oil to DL for free and DL would look great while Monroe was losing its shirt, *minus* the cost of the refinery. Or Monroe could sell it to DL at market rates and DL would be no better off, but again minus the cost of the refinery.

Cost to Delta = raw materials + raw materials transport + refining + transport product + sales costs. Delta is getting a deal on raw materials, probably transport of product (this is all going to JFK and other east coast airports near Trainer as I recall) and sales costs. Refining is more, raw materials transport may be more.

Without details on all the components, hard to speculate on the outcome, but anything that stabilizes price is good as it reduces business configurations for worse case. We'll see in a year.

Topic: RE: DL Losing Money In Refinery
Username: STT757
Posted 2013-02-06 14:36:35 and read 5568 times.

I think a lot depends on whether DL will be able to refine the domestic supplies vs. imports.

Quote:
At $96 a barrel, U.S. oil prices are now $20 cheaper than North Sea Brent crude futures, which are trading above $116 a barrel. Since gasoline is priced based on the Brent crude oil market, Gheit says, "making a gallon of gasoline is cheaper to do here than overseas."

That's the reason East coast refineries, which rely more on foreign oil than domestic crude, are shutting down. Last week, Hess announced the closure of its Port Reading, NJ refinery at the end of the month. Deutsche Bank estimates about 610,000 barrels a day of refining capacity has been shut down since 2009, excluding Hess' NJ refinery. About 60 percent of the closures have been on the East Coast, according to Deutsche Bank
http://www.cnbc.com/id/100439950

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-06 14:41:25 and read 5567 times.

One of the major premises of the initial poster's theory was that "non-oil-business" Delta was too stupid to realize, as smart Phillips 66 did, that there was no way to make money with the Trainer refinery.

If it was so obvious that one could just bring in Bakken crude and make money, goes the argument, someone in the oil business would have been smart enough to do the same thing.

How interesting, then, that Sun Oil, a company in the oil business, in the same time period, took in an investment partner to rehabilitate its South Philly refinery to process the same Bakken crude, to be shipped the same way -- by rail, potentially producing one-quarter of the Northeast's consumption of refined oil products.

Boy those airline guys are just neophyte idiots, aren't they?

[Edited 2013-02-06 14:43:03]

Topic: RE: DL Losing Money In Refinery
Username: PSU.DTW.SCE
Posted 2013-02-06 14:51:21 and read 5559 times.

Quoting enilria (Reply 161):
Well, as I said earlier, that guy was clearly the internal "champion" of the program. If they do not appoint another person to champion it internally, which they have yet to do after two months apparently, the program is in trouble since something that far off the reservation for an airline must have somebody like that.

The guy who left was hired in to DL specifically because his background in the Oil & Gas Industry and Finance.

We do not know that they have not filled his position, they do not necessarily have to make a public announcement. Although in this case if they did select a new VP it will likely make its way out to the media.

Whatever reason behind his departure, it was likely unplanned and that could be from either side.
DL likely does not have the desired experitise in-house so they almost certainly have to look externally. It has only been about 6 weeks and more like 4 once you exclude the holidays. Executive searches and hiring can easily take 3+ months.

This is more of a strategic position that guides the organization so the people under him can make the tactical decisions to run the operation.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-06 16:09:03 and read 5461 times.

Quoting AeroWesty (Reply 154):
1) If you go back and read all of the articles and press releases by those with intimate knowledge they state something akin to Trainer would have needed substantial investment to "remain competitive", without disclosing what that investment would have to be, nor what they expected to gain from further investment.

With all due respect, the statement above is incorrect. Conoco stated the Trainer plant was "not profitable". I apologize, I don't have time to find the two year old link, but it's out there. They needed to explain to their shareholders why they where willing, if need be, to simply close the plant.

Quoting AeroWesty (Reply 154):
Even if Trainer is loss-making for Delta, if having that capacity back online tempers the overall cost of refined products, it could be seen as a win. Bottom line: Trainer simply hasn't been open and operating long enough, nor do we know enough about how it's accounted for financially, to say it's a success or failure one way or the other right now.

It's true, the continued operation of the Trainer plant has undoubtedly caused the price of refined products in the Northeast to remain lower than they otherwise would be. The problem is that the benefit of this is passed on to every consumer of petroleum products from Philly to Boston (including Delta's competitors) while the cost is born by Delta alone.

What we know about Trainer's financial results is that they are a loss. We get this from Delta's financial communication (as they say 'I'm not making this up'). If in fact Trainer is making money while Delta discloses losses, Delta's statements aren't worth the paper they are printed on and Delta's accountants should be very afraid. The facts as we know them is that Trainer has lost money for years and continues to do so.

BTW, the argument as to the benefit of the refinery is very simple. Yep, it cost a lot of money. Yep, it required many tens of millions in upgrades. Yep, it's been operating at a loss. But, introduction of lower cost crude, optimization of the product slate and continuing tightening of the east coast refining marker will allow the plant to make money.

It's not about integration, it's not about different investment goals, it's not about refining for free, it's not about mysterious accounting; it's about operating a profitable business

If that happens, the crew at Delta should be commended.

Topic: RE: DL Losing Money In Refinery
Username: Flighty
Posted 2013-02-06 16:34:17 and read 5437 times.

Quoting mcg (Reply 169):
If in fact Trainer is making money while Delta discloses losses, Delta's statements aren't worth the paper they are printed on and Delta's accountants should be very afraid. The facts as we know them is that Trainer has lost money for years and continues to do so.

It has lost money on an oil industry basis. Delta theorized that on an airline industry basis, it could be P&L positive. It's not clear which accounting method is being used for those backward looking statements. In any case, I don't believe the facility has done its first year of normal operations.

Quoting mcg (Reply 169):
If that happens, the crew at Delta should be commended.

  

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-06 16:47:30 and read 5413 times.

Quoting Flighty (Reply 170):
I don't believe the facility has done its first year of normal operations.

I don't believe the facility has done its first QUARTER of normal operations, so you are correct!

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-06 17:11:37 and read 5366 times.

Quoting mcg (Reply 169):
It's not about integration, it's not about different investment goals, it's not about refining for free, it's not about mysterious accounting; it's about operating a profitable business

You forgot this.......it's not about refining to sell on the open market......it's about refining FOR DL'S OWN USE. To me, that changes the formula and the result, quite a bit. It seems to me that any savings or profit from this venture is NOT on the refinery side, it's on the airline side.

Topic: RE: DL Losing Money In Refinery
Username: cokepopper
Posted 2013-02-06 18:07:48 and read 5319 times.

From Bloomberg, New York Weakens on Restart of Delta Trainer FCC

"The catalytic cracker, which was initially expected to be offline for 10 days to 14 days, has been shut since December to address issues with a slurry oil circuit, said Trebor Banstetter, a spokesman for Delta in Atlanta."

http://www.bloomberg.com/news/2013-0...-delta-trainer-fcc.html?cmpid=yhoo

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-06 18:07:51 and read 5303 times.

Quoting wjcandee (Reply 167):
One of the major premises of the initial poster's theory was that "non-oil-business" Delta was too stupid to realize, as smart Phillips 66 did, that there was no way to make money with the Trainer refinery.

I'm the initial poster, and I don't think I ever said that.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-06 19:35:09 and read 5221 times.

Quoting UALWN (Reply 174):
I'm the initial poster, and I don't think I ever said that.

Well, maybe saying this, implied it......

Quoting UALWN (Thread starter):
According to this article, DL's last year "genius" move to buy an oil refinery in Pennsylvania may not have been so brilliant after all.

Who put the "genius" in quotes......you or the person that wrote the article?

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-06 20:59:58 and read 5137 times.

And as amplified by folks like EricR in reply 50.

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-06 23:38:39 and read 5111 times.

Quoting mayor (Reply 175):
Who put the "genius" in quotes......you or the person that wrote the article?

I did, quoting people in a.net who said that at the time. But, again, I did not say the following:

Quoting wjcandee (Reply 167):
One of the major premises of the initial poster's theory was that "non-oil-business" Delta was too stupid to realize, as smart Phillips 66 did, that there was no way to make money with the Trainer refinery.

Topic: RE: DL Losing Money In Refinery
Username: diverdave
Posted 2013-02-07 05:35:12 and read 5008 times.

Quoting mcg (Reply 169):
With all due respect, the statement above is incorrect. Conoco stated the Trainer plant was "not profitable". I apologize, I don't have time to find the two year old link, but it's out there. They needed to explain to their shareholders why they where willing, if need be, to simply close the plant.

Some refineries are closing because of EPA regulations. This Forbes article is a bit rabid, but still somewhat to the point:

http://www.forbes.com/sites/larrybel...s-produce-crude-unrefined-results/

http://2012nevadacounty.wordpress.co...inery-closes-in-us-virgin-islands/

http://news.investors.com/ibd-editor...to-blame-for-gas-crisis.htm?p=full

David

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-07 09:12:18 and read 4860 times.

Quoting UALWN (Reply 177):
Quoting mayor (Reply 175):
Who put the "genius" in quotes......you or the person that wrote the article?


I did, quoting people in a.net who said that at the time. But, again, I did not say the following:

Quoting wjcandee (Reply 167):
One of the major premises of the initial poster's theory was that "non-oil-business" Delta was too stupid to realize, as smart Phillips 66 did, that there was no way to make money with the Trainer refinery.

Perhaps the way it was used seemed to imply that you thought they were stupid. No matter.......they are hardly stupid and I'm sure they people they hired as well as other consultants worked on this long and hard before they pulled the trigger.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-07 11:18:02 and read 4777 times.

Quoting mayor (Reply 132):
Quoting EricR (Reply 127):
Also has DL actually committed to getting their oil from the Bakken? The last I heard is that they were only exploring this as an option.

I heard it somewhere (probably on here) but couldn't tell you for sure.

Found something about it, but not from here.....


http://www.minyanville.com/sectors/e...e-monroe-energy/9/10/2012/id/43839

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-07 13:34:43 and read 4714 times.

Did you guys notice that NY Harbor gasoline dropped yesterday specifically on the basis that Delta would be restarting a fluid catalytic cracker at Trainer?

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-07 13:52:04 and read 4691 times.

You know, I went back and looked at the resume of the person who wrote the "Why They Are Ruing The Day" article that precipitated this whole thread.

Dian Chu has an MBA from University of Houston and is a self-employed and self-proclaimed "creative and stategic thinking market economist" who spends her day promoting herself by slinging articles out on the Internet. She is not associated with a reputable major publication and doesn't purport to have any experience actually working at any known financial house or major company.

The premise of the article that Delta "rues the day" it did this transaction is backed up by NOTHING. To the contrary, this major public company has made a point of saying that they still expect almost the full $300 million in benefit from this thing that they had hoped for this year. They know the numbers. They will be penalized if they lie. They had no reason to make that prediction voluntarily, particularly if they didn't believe it to be true.

In contrast, the article is based mostly on conjecture, the theories of others who also don't have the numbers, and, as I mentioned earlier, stupid statements along the lines of "Conoco has been in the oil business for 175 years. Don't you think they could make it work if it could work?" I dunno, Dian, but it seems to me that the world of business is full of examples of new management and acquiring companies making profits from assets that others could not make work. Among other things, the price paid for those assets has an effect on profitability. You fire-sell me a restaurant. I turn it around. I make money when you were losing money. You sell me USAirways. I turn it around. I make money. You bring a guy from Boeing named Gordon Bethune in at Continental Airlines (which had been in the airline business a long time). He turns it around. He makes money.

This is someone who has no downside to bomb-throwing, and no basis to say that Delta "rues" anything. I myself am round-filing this article, and waiting to see what happens as Delta continues its refining adventure. That everything is up and running properly now, after a longer-than-expected turnaround on some of this equipment, is significant.

[Edited 2013-02-07 13:55:08]

Topic: RE: DL Losing Money In Refinery
Username: SSTeve
Posted 2013-02-07 13:55:06 and read 4676 times.

Quoting wjcandee (Reply 182):
Dian Chu has an MBA from University of Houston and is a self-employed and self-proclaimed "creative and stategic thinking market economist" who spends her day promoting herself by slinging articles out on the Internet.

Otherwise known as a freelancer. Doesn't make her wrong, though I tend to have more of a wait-and-see attitude like yourself.

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-07 14:04:22 and read 4662 times.

I'm thinking of writing an article entitled "Why Boeing Rues The Day It Green-Lighted The 787". I have an economics degree from Princeton and a J.D. from the University of Chicago. And I'm a "creative-thinker", too. Really. I will talk about how just it's just awful that Boeing decided to try new technologies in a new aircraft, and how dumb they are for thinking they could make it work, pointing to all the setbacks they have had. I will quote Jon Ostrower for some good, reliable insider information. I will then conclude that the company will be going out of business.

I bet it will get some play in the StupidSphere.

Then, I will write an article about "Why America Rued The Day It Tried To Go To The Moon". I will point out that astronauts actually DIED in Apollo One, and how obvious it was that this was an unattainable goal -- the tecnology just wasn't available and could never be created -- and that they should have given up right there. I will point out that, of course, in the end, they had to fake the whole trip to the moon on a sound stage somewhere, because they never were going to be able to make it work. They even kept the charade up for years, inventing storylines like Apollo 13, just to be sure people bought it. Because development of new technology, and exploitation of new ways of thinking in general, should always go in a straight line, without any setbacks, if it is going to work.

[Edited 2013-02-07 14:13:01]

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-07 15:08:18 and read 4605 times.

Quoting wjcandee (Reply 182):
I myself am round-filing this article, and waiting to see what happens as Delta continues its refining adventure. That everything is up and running properly now, after a longer-than-expected turnaround on some of this equipment, is significant.

Thanks for your series of posts on this subject. When I've more time, I'm going to read more of Dian Chu's articles. I did find one that I've queued up to read more in-depth, where she predicts $45/bbl oil in a piece at oilprice.com on Dec 31, 2012:

Why the US Oil Market will go from Strength to Strength in 2013

Some of her conclusions when read side-by-side to her article regarding Delta/Trainer specifically, seem quite interesting.

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-07 16:47:08 and read 4548 times.

Great find, AeroWesty. Another article that's almost-pure conjecture, and interesting to reconcile with the other one. It's also written like a complete stream of consciousness, or by a 12th-grader. The one that started this thread is actually much-better-written, if equally as useless.

It seems like she is staking out contrarian positions so that if she hits the lottery with one of them, she can point to it as an indication of her genius.

Topic: RE: DL Losing Money In Refinery
Username: TVNWZ
Posted 2013-02-07 17:01:45 and read 4531 times.

Quoting wjcandee (Reply 186):

Your recent posts are enough for me to put you on my respect list. Oh. Wait. Your already there!
Great analysis and can't wait for the Boeing article!  

Topic: RE: DL Losing Money In Refinery
Username: PSU.DTW.SCE
Posted 2013-02-07 18:29:34 and read 4473 times.

Wow.....the author has even less credibility than I initially thought.

Topic: RE: DL Losing Money In Refinery
Username: jetfixr757
Posted 2013-02-07 18:42:03 and read 4456 times.

See the look of surprise on my face  . Didn't see it coming now!!!!
Jet

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-07 18:56:17 and read 4442 times.

Quoting wjcandee (Reply 184):
I will point out that, of course, in the end, they had to fake the whole trip to the moon on a sound stage somewhere, because they never were going to be able to make it work. They even kept the charade up for years

Capricorn One, with OJ Simpson http://www.imdb.com/title/tt0077294/

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-07 19:32:12 and read 4424 times.

Quoting Flighty (Reply 170):
It has lost money on an oil industry basis. Delta theorized that on an airline industry basis, it could be P&L positive.

This is the source of much confusion. There is no such thing as an "airline industry basis". Delta accounts for the refinery as a refinery, then adds or subtracts the loss or profit from the refinery to fuel cost on the P and L. If the refinery is profitable fuel cost is reduced, if the refinery loses money fuel cost is increased.

Topic: RE: DL Losing Money In Refinery
Username: MSPNWA
Posted 2013-02-07 20:27:28 and read 4357 times.

Quoting wjcandee (Reply 182):
The premise of the article that Delta "rues the day" it did this transaction is backed up by NOTHING. To the contrary, this major public company has made a point of saying that they still expect almost the full $300 million in benefit from this thing that they had hoped for this year. They know the numbers. They will be penalized if they lie. They had no reason to make that prediction voluntarily, particularly if they didn't believe it to be true.

It's an opinion piece. Don't get too huffy about it.

We know that Delta's projections will be biased. In fact about every economic projection made is positively inflated. We really don't know if the Chu's analysis is biased or not, so we take it with a grain of salt. And you're going to trust Delta for the numbers? That's backwards thinking. Accounting rules are such that corporations can get away without telling the whole truth. Delta has every reason to make a positive projection. You think a corporation is going to make a negative projection on a recent acquisition? No way.

Quoting wjcandee (Reply 186):
Great find, AeroWesty. Another article that's almost-pure conjecture, and interesting to reconcile with the other one. It's also written like a complete stream of consciousness, or by a 12th-grader. The one that started this thread is actually much-better-written, if equally as useless.

I'm an economics student, and that was written by someone with more knowledge than myself. It makes a lot of sense since I know the lingo, but I wouldn't be able to make a forecast like that. This article is very interesting, and I believe that it will turn out to be as accurate as an educated guess can be. The author gained credibility from me.

You know what's useless? Attacks against the columnist and not the content. That's not a good argument.

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-07 21:36:29 and read 4292 times.

Quoting mayor (Reply 193):

You and I only work(ed) for the company at hand, while he's a student who 'knows the lingo'.
It's only logical that he knows better...or is it?  

Topic: RE: DL Losing Money In Refinery
Username: delta2ual
Posted 2013-02-08 10:50:40 and read 4115 times.

Yet another "expert" chimes in: (3 Big Myths About Delta's Refinery)

http://www.fool.com/investing/genera...g-myths-about-deltas-refinery.aspx

I'm always amazed that regardless the topic, so many people can have so many different views. I guess only time will tell: either DL made a wise move-or they didn't.

[Edited 2013-02-08 10:51:25]

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-08 11:52:15 and read 4042 times.

Quoting delta2ual (Reply 194):
I'm always amazed that regardless the topic, so many people can have so many different views.

Great link, thank you for adding it to the conversation. I've known the Motley Fool folks since they started out online on AOL in the early 90s, and have always respected their work. It was certainly satisfying to read that their three myths about the Delta/Trainer investment are the same exact points that myself and others have been outlining over the course of nearly 200 posts in this thread over the past 4 days.

Topic: RE: DL Losing Money In Refinery
Username: alfa164
Posted 2013-02-08 18:00:58 and read 3913 times.

Quoting mcg (Reply 191):
This is the source of much confusion. There is no such thing as an "airline industry basis". Delta accounts for the refinery as a refinery, then adds or subtracts the loss or profit from the refinery to fuel cost on the P and L. If the refinery is profitable fuel cost is reduced, if the refinery loses money fuel cost is increased.
http://www.fool.com/investing/genera...g-myths-about-deltas-refinery.aspx



Now... do I trust infamous Delta-hater or an investment expert known for quality recommendations??? Llet me think...

Topic: RE: DL Losing Money In Refinery
Username: B757forever
Posted 2013-02-08 18:06:17 and read 3909 times.

Quoting alfa164 (Reply 196):
Now... do I trust infamous Delta-hater or an investment expert known for quality recommendations???

Funny how the posts on this topic really slowed down...  

Topic: RE: DL Losing Money In Refinery
Username: alfa164
Posted 2013-02-08 18:15:24 and read 3897 times.

Quoting B757forever (Reply 197):
Funny how the posts on this topic really slowed down...

Yep... I guess all the "genius" commentators may be a little flustered...

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-08 19:04:25 and read 3851 times.

If anyone wants to read a bit more, the same author of the Fool article also wrote the linked article below in Sept/12, which explains why there is an "airline industry basis" for how to rate the investment in Trainer by a company which is a consumer vs. one which is simply a producer:

Delta's Refinery Buy Looking Smarter Every Day

It's interesting mainly in that it can quickly give the reader a gestalt regarding the crack spread issue backed up with actual numbers from the time he wrote the piece.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-08 21:21:43 and read 3800 times.

The fact remains the Trainer refinery has yet to earn a nickel for DL, I'd say wait for some actual returns before declaring victory. Don't let the facts get in the way of your obvious prejudice.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-08 21:28:42 and read 3790 times.

Quoting mcg (Reply 200):
I'd say wait for some actual returns before declaring victory.

Glad we're in agreement. That's what I said 46 posts ago:

Quoting AeroWesty (Reply 154):
Bottom line: Trainer simply hasn't been open and operating long enough, nor do we know enough about how it's accounted for financially, to say it's a success or failure one way or the other right now.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-08 21:30:27 and read 3837 times.

Quoting mcg (Reply 200):
The fact remains the Trainer refinery has yet to earn a nickel for DL, I'd say wait for some actual returns before declaring victory. Don't let the facts get in the way of your obvious prejudice.

The door swings both ways, bubba.

Topic: RE: DL Losing Money In Refinery
Username: EricR
Posted 2013-02-08 21:38:23 and read 3826 times.

Quoting AeroWesty (Reply 199):
If anyone wants to read a bit more, the same author of the Fool article also wrote the linked article below in Sept/12, which explains why there is an "airline industry basis" for how to rate the investment in Trainer by a company which is a consumer vs. one which is simply a producer:

Delta's Refinery Buy Looking Smarter Every Day

It's interesting mainly in that it can quickly give the reader a gestalt regarding the crack spread issue backed up with actual numbers from the time he wrote the piece
.



The best part about articles such as these is not the article itself, but the commentary from the readers below the article. The reason is because readers of the article often provide counter-arguments to the author's point of view. In the case of this article, a reader accurately points out that the current crack spread is unusually high and won't go on forever. The author subsequently acknowledges this fact.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-08 22:13:26 and read 3800 times.

Quoting EricR (Reply 203):
The best part about articles such as these is not the article itself, but the commentary from the readers below the article.

Agreed. I like the way the author responds to comments.

One thing I wish got more play in this is what is Delta's overall risk if the market turns against them or if the refinery doesn't work out as planned operationally. Basically, it's the delta between what Delta paid for Trainer and its intrinsic value as a storage facility, plus or minus any profits or losses realized up to that point. Trainer doesn't necessarily have to be a money pit, since Delta controls the taps.

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-09 08:42:18 and read 3633 times.

Quoting AeroWesty (Reply 199):
Delta's Refinery Buy Looking Smarter Every Day

It's interesting mainly in that it can quickly give the reader a gestalt regarding the crack spread issue backed up with actual numbers from the time he wrote the piece.

It's also interesting that this was published in the same investment web site that 3 months later published the article I linked in the first post. And it is also interesting that the author of the Sep. '12 article was long on Delta, while the author of this year's article didn't have any position....

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-09 10:34:23 and read 3560 times.

Quoting UALWN (Reply 205):
It's also interesting that this was published in the same investment web site that 3 months later published the article I linked in the first post.

Also telling is that the article you linked was written under a pen name, and its author didn't answer any of the comments posted, pro or con.

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-09 10:47:20 and read 3545 times.

Quoting AeroWesty (Reply 206):
Also telling is that the article you linked was written under a pen name

Not exactly a pen name: EconMatters is a group of people.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-09 10:55:31 and read 3537 times.

Call it whatever you want, I really don't care. Pen name, pseudonym, "group of people", you choose. The article still was written without a byline of an actual person as published.

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-09 12:21:32 and read 3462 times.

Quoting AeroWesty (Reply 208):
The article still was written without a byline of an actual person as published.

Yep, just like every single article in The Economist, for instance...

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-09 12:38:03 and read 3450 times.

Quoting UALWN (Reply 209):
Yep, just like every single article in The Economist, for instance...
The Economist is a well-known exception to the rule, see:

Why The Economist has no bylines

Now, if you'd like to continue arguing picayune matters, you'll have to come up with something better than equating the sources of published items in a mainly by-submission website to a published magazine with a history extending back over 160 years. I'm not quite sure what the point would be, however.

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-09 12:59:59 and read 3430 times.

Quoting AeroWesty (Reply 210):
The Economist is a well-known exception to the rule, see:

Why The Economist has no bylines

I've been subscribed to The Economist for the last 22 years, so I knew all that. But thank you anyway. My point was that "no byline" does not necessarily mean "low quality," as you seemed to imply.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-09 13:12:31 and read 3401 times.

Quoting UALWN (Reply 211):
My point was that "no byline" does not necessarily mean "low quality," as you seemed to imply.

If you were confused by my post, you could have simply asked if that's what I meant. As I stated, my issue was with the lack of replies to the comments the article generated in combination with the author not using his/her real name.

[Edited 2013-02-09 13:14:43]

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-09 13:30:16 and read 3372 times.

Quoting AeroWesty (Reply 212):
As I stated, my issue was with the lack of replies to the comments the article generated in combination with the author not using his/her real name.

Uh? I was replying to this:

Quoting AeroWesty (Reply 208):
The article still was written without a byline of an actual person as published.

Topic: RE: DL Losing Money In Refinery
Username: AeroWesty
Posted 2013-02-09 13:45:46 and read 3360 times.

Quoting UALWN (Reply 213):
Uh? I was replying to this:

Your current line of questioning began a couple of lines above.

As this line of questioning adds nothing to the topic of the thread, this shall be my last post on this side issue. If you have any further comments or confusion about my intentions, please feel free to send me an IM.

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-09 14:08:07 and read 3346 times.

Quoting AeroWesty (Reply 214):
As this line of questioning adds nothing to the topic of the thread, this shall be my last post on this side issue.

I think it does add: you latched onto the anonymity of that negative article, which I regard as irrelevant, while failing to address that the earlier positive article was written by somebody who owned Delta shares, which I regard as relevant...

Topic: RE: DL Losing Money In Refinery
Username: alfa164
Posted 2013-02-10 18:50:20 and read 3051 times.

Quoting mcg (Reply 169):
It's true, the continued operation of the Trainer plant has undoubtedly caused the price of refined products in the Northeast to remain lower than they otherwise would be. The problem is that the benefit of this is passed on to every consumer of petroleum products from Philly to Boston (including Delta's competitors) while the cost is born by Delta alone.


Unless you possess some secret data that no one else knows about, this is patently untrue. The whole point of Trainer was to produce and sell jet fuel to DL at a REDUCED cost - a cost that would not include the brokerage portion of the "crack spread" that has grown much larger in recent years - but to sell (or trade) the other pertoluim products at market rates.

On the other hand, if we are to believe you, your claim the "...Trainer...has caused to price of refined products in the Northeast to remain lower than they otherwise would be," you have just proven DL's success - they are buying jet fuel at a price "lower than (it) otherwise would be" - the exact outcome they were hoping for. Your arguments are self defeating.

Of course, that still assumes that you have discovered the secret plan. Somewhere, in your many, many posts, I'd like to see a source for all your inside knowledge. Please?

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-11 10:10:17 and read 2903 times.

Quoting alfa164 (Reply 216):
Unless you possess some secret data that no one else knows about, this is patently untrue.

Maybe you should have read the article from last week in which the price of east coast gasoline dropped when they brought the fluid catalytic cracker back online at Trainer.

So maybe should quit the sarcastic comments. I'm pretty good with sarcasm myself, but I respect the forum by not cracking you across the face with it.

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-11 10:13:17 and read 2902 times.

Now we're equating The Economist with this little cabal of self-promoters called EconMatters?

You can agree or disagree with the Economist, and I often disagree, but I usually respect the thoughtfulness of their analysis and their efforts to back the analysis with facts that they put out there for you to analyse and debate.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-11 20:40:13 and read 2728 times.

Quoting alfa164 (Reply 216):
On the other hand, if we are to believe you, your claim the "...Trainer...has caused to price of refined products in the Northeast to remain lower than they otherwise would be," you have just proven DL's success - they are buying jet fuel at a price "lower than (it) otherwise would be" - the exact outcome they were hoping for. Your arguments are self defeating.

The problem is DL had to $125 million for the refinery, plus another $125 million in upgrades, plus ongoing operating losses to achieve this outcome. DL's competitors

Quoting alfa164 (Reply 216):
Quoting mcg (Reply 169):
It's true, the continued operation of the Trainer plant has undoubtedly caused the price of refined products in the Northeast to remain lower than they otherwise would be. The problem is that the benefit of this is passed on to every consumer of petroleum products from Philly to Boston (including Delta's competitors) while the cost is born by Delta alone.


Unless you possess some secret data that no one else knows about, this is patently untrue.

I guess I gotta ask, do you understand how the market for refined petroleum products work?

More supply results in lower price. Thus, when Trainer is open and pumping out product, prices for similar products in the market served by Trainer (i.e the Northeast) are lower than they would have been had Trainer been shut down. As I noted in my post, this is great for every consumer of petroleum products in the Northeast as the cost (i.e. $125 million to acquire refinery, $125 million to refurb it and ongoing operating losses) are born by DL.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-11 20:43:32 and read 2724 times.

Quoting alfa164 (Reply 216):
The whole point of Trainer was to produce and sell jet fuel to DL at a REDUCED cost - a cost that would not include the brokerage portion of the "crack spread" that has grown much larger in recent years

This is just the goal that has not yet been achieved. A gallon of jet fuel produced at Trainer is more expensive than a gallon simply purchased in the market. We know this because Trainer lost $63 million last quarter, this means that every gallon produced by the refinery cost more to produce than it was worth.

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-11 21:15:55 and read 2697 times.

Quoting mcg (Reply 219):
ongoing operating losses

Nobody expects that these "losses" will be "ongoing".

The investment in the refinery is still on-target to have a payback period of one year. That's remarkably-low.

Also, Delta didn't "spend" $250 million...it made a capital investment of about $250 million. In return it got a refurbished productive asset. What the market value of that asset is today, I don't know. But it's more than zero.

Topic: RE: DL Losing Money In Refinery
Username: mayor
Posted 2013-02-11 21:28:32 and read 2690 times.

Quoting mcg (Reply 219):
Thus, when Trainer is open and pumping out product, prices for similar products in the market served by Trainer (i.e the Northeast) are lower than they would have been had Trainer been shut down

Why should this be, when, apparently, this product is NOT on the open market in the northeast but is going to DL, for their own use?

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-11 23:46:11 and read 2627 times.

Quoting mayor (Reply 222):
this product is NOT on the open market in the northeast but is going to DL, for their own use

That's a good question, but here's what I think the answer is: regardless of whether the fuel is dedicated to Delta or not, that fuel increases the volume of such fuel being produced globally, and thus depresses the public market a smidge. In other words, if Trainer produces 1000 barrels of jet fuel this month, and it goes directly to DL at JFK, then 1000 barrels of jet fuel wouldn't have been sold out of the jet fuel being refined and sold by others. In the longer run, refiners have the ability to shift around, within certain limits, the proportions of different fuels being produced from a barrel of oil, but it's not absolute.

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-12 01:45:42 and read 2595 times.

Quoting mayor (Reply 222):
Why should this be, when, apparently, this product is NOT on the open market in the northeast but is going to DL, for their own use?

It has been said several times in the thread: only about 20% of the output of the refinery is jetA. The rest has to be sold in the open market. DL will try to get that 20% up to about one third, but some people are skeptical about this.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-12 06:30:38 and read 2499 times.

Quoting wjcandee (Reply 223):
this product is NOT on the open market in the northeast but is going to DL, for their own use

That's a good question, but here's what I think the answer is: regardless of whether the fuel is dedicated to Delta or not, that fuel increases the volume of such fuel being produced globally, and thus depresses the public market a smidge. In other words, if Trainer produces 1000 barrels of jet fuel this month, and it goes directly to DL at JFK, then 1000 barrels of jet fuel wouldn't have been sold out of the jet fuel being refined and sold by others.

This is exactly right.

Topic: RE: DL Losing Money In Refinery
Username: mcg
Posted 2013-02-12 06:34:09 and read 2493 times.

Quoting wjcandee (Reply 221):
Nobody expects that these "losses" will be "ongoing".

That's the gist of this whole discussion. Time will tell. Last quarters loss was $63 million.

Quoting wjcandee (Reply 221):
Also, Delta didn't "spend" $250 million..

Delta did in fact spend $250 million. Time will tell as to whether that is a productive investment.

Topic: RE: DL Losing Money In Refinery
Username: sprout5199
Posted 2013-02-12 10:54:57 and read 2395 times.

The way I see this is as follows:

The "refinery" will NEVER make a profit. Thats not why Delta bought it. They bought it to reduce their fuel costs in the northeast. So if the cracking spread stays the way it is, Delta will save this cost on fuel on the amount produced at the refinery. If the spread goes down because of them getting the refinery, then they save more across the board, even though the % that they save at the "refinery" goes down. If the cracking spread goes up, then the "refinery" saves Delta even more money but they pay more elsewhere.
So I guess the big question is how fast they can recoup their investment in the refinery through the savings in fuel. Once again it goes to the cracking spread.
Now this is not even thinking about the fuels that Delta has made deals to swap with BP and Phillips.

I see it as a win for Delta vs small risk. They bought 4 billion gallons of jet fuel so how much risk is $250 million? And as someone said above, if Southwest did this, it would be the smartest thing ever done by an airline.

Dan in Jupiter

Topic: RE: DL Losing Money In Refinery
Username: rwy04lga
Posted 2013-02-12 18:13:06 and read 2240 times.

Quoting UALWN (Reply 224):
The rest has to be sold in the open market.

As has been said a few times on the thread...Delta will trade byproducts for Jet A elsewhere. Also, show me where it's been said that only 20% of product will be jet A.

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-12 19:17:54 and read 2190 times.

Quoting mcg (Reply 226):
Delta did in fact spend $250 million.

I was reading spend as in "an expense". It's not an expense, it's a long-term capital investment, the purchase price plus the rehab cost. It will be depreciated (i.e. expensed) over the long-haul, and presumably they are left with a productive asset of some resale value. That was my point. But if "spend" means "write a check", well, yeah, they did.

Topic: RE: DL Losing Money In Refinery
Username: wjcandee
Posted 2013-02-12 20:42:38 and read 2133 times.

Quoting sprout5199 (Reply 227):
The "refinery" will NEVER make a profit. Thats not why Delta bought it.

I could be wrong about this, but, having taken a couple of accounting courses just to have a general understanding of how it all works, I am pretty sure that there's an accounting methodology that will necessarily take the overall picture into account. That is, they will say, "First, we made/lost X on Trainer as an operating refinery. Second, we calculate that our commitment to buy the Jet A production of Trainer at Price Y saved/cost us Z dollars over what we could have bought Jet A at on the open market. Third, with respect to our Jet A requirements that were not met by the production at Trainer or our agreements to sell B gallons of Jet A to BP in New York in return for taking B gallons of Jet A at Los Angeles, which we purchased on the open market or pursuant to contracts with others, we calculate that Trainer's contribution to the overall market affected the price of that supply such that we saved/lost C dollars over what that open-market fuel would have cost us if Trainer wasn't in operation. Thus, the net benefit/loss to Delta on its consolidated balance sheets from the operations at Traner is $D million." That's really the only way fairly to present it if in fact they plan to break out the numbers and report on the value to Delta of the investment.

Topic: RE: DL Losing Money In Refinery
Username: catiii
Posted 2013-02-12 21:57:39 and read 2081 times.

Anyone ever get the scoop on what happened to Ruggles? I heard a rumor, but don't want to post it because it could be libelous.

Topic: RE: DL Losing Money In Refinery
Username: UALWN
Posted 2013-02-13 02:26:53 and read 2017 times.

Quoting rwy04lga (Reply 228):
Delta will trade byproducts for Jet A elsewhere.

How is that different from selling those byproducts? You can sell them for cash and buy jetA with that cash, or sell them for jetA directly.

Quoting rwy04lga (Reply 228):
Also, show me where it's been said that only 20% of product will be jet A.

In an article linked from the article I mentioned in the first post of this thread:

http://blogs.platts.com/2013/01/22/delta_trainer/

"Delta wants jet fuel to be one-third of their production, and said in December it had reached 20%. Many people say they’ll be lucky to get beyond 20%."

Topic: RE: DL Losing Money In Refinery
Username: SSTeve
Posted 2013-02-13 08:05:57 and read 1929 times.

For what it's worth, that sort of gloomy article is written about any new airline venture. It's low margin, the business sucks for everyone, there's nothing new under the sun. They're just talking about oil refining this time.


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