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DL Losing Money In Refinery  
User currently offlineUALWN From Andorra, joined Jun 2009, 2757 posts, RR: 2
Posted (1 year 5 months 3 weeks 6 days 1 hour ago) and read 21190 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


AT7/111/146/Avro/CRJ/CR9/EMB/ERJ/E75/F50/100/L15/DC9/D10/M8X/717/727/737/747/757/767/777/AB6/310/319/320/321/330/340/380
233 replies: All unread, showing first 25:
 
User currently offlineDeltal1011man From United States of America, joined Sep 2005, 9295 posts, RR: 14
Reply 1, posted (1 year 5 months 3 weeks 6 days ago) and read 21113 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



yep.
User currently onlinetoobz From Finland, joined Jan 2010, 768 posts, RR: 0
Reply 2, posted (1 year 5 months 3 weeks 6 days ago) and read 20955 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.

User currently offlineTdan From United States of America, joined Nov 2011, 409 posts, RR: 3
Reply 3, posted (1 year 5 months 3 weeks 6 days ago) and read 20912 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...



We will ride this thunderbird, silver shadows on the earth, a thousand leagues away our land of birth... -Captain Bruce
User currently offlinebongodog1964 From United Kingdom, joined Oct 2006, 3536 posts, RR: 3
Reply 4, posted (1 year 5 months 3 weeks 6 days ago) and read 20881 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.


User currently offlineSYDSpotter From Australia, joined Oct 2012, 153 posts, RR: 0
Reply 5, posted (1 year 5 months 3 weeks 5 days 23 hours ago) and read 20798 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]


319_320_321_332_333_388 / 734_738_743_744_762_763_772_773_77W
User currently offlineWisdom From , joined Dec 1969, posts, RR:
Reply 6, posted (1 year 5 months 3 weeks 5 days 23 hours ago) and read 20658 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.


User currently offlineDeltal1011man From United States of America, joined Sep 2005, 9295 posts, RR: 14
Reply 7, posted (1 year 5 months 3 weeks 5 days 23 hours ago) and read 20482 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.



yep.
User currently offlineUALWN From Andorra, joined Jun 2009, 2757 posts, RR: 2
Reply 8, posted (1 year 5 months 3 weeks 5 days 23 hours ago) and read 20409 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.



AT7/111/146/Avro/CRJ/CR9/EMB/ERJ/E75/F50/100/L15/DC9/D10/M8X/717/727/737/747/757/767/777/AB6/310/319/320/321/330/340/380
User currently offlineNYCAdvantage From United States of America, joined Sep 2009, 355 posts, RR: 0
Reply 9, posted (1 year 5 months 3 weeks 5 days 22 hours ago) and read 20320 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.


User currently offlinewjcandee From United States of America, joined Jun 2000, 5130 posts, RR: 22
Reply 10, posted (1 year 5 months 3 weeks 5 days 22 hours ago) and read 20233 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".


User currently onlinePSU.DTW.SCE From United States of America, joined Jan 2002, 7529 posts, RR: 28
Reply 11, posted (1 year 5 months 3 weeks 5 days 22 hours ago) and read 20124 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.


User currently offlinewjcandee From United States of America, joined Jun 2000, 5130 posts, RR: 22
Reply 12, posted (1 year 5 months 3 weeks 5 days 22 hours ago) and read 20060 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.


User currently offlineTriple7Lr From United States of America, joined Sep 2012, 95 posts, RR: 0
Reply 13, posted (1 year 5 months 3 weeks 5 days 22 hours ago) and read 20053 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.


User currently offlinewjcandee From United States of America, joined Jun 2000, 5130 posts, RR: 22
Reply 14, posted (1 year 5 months 3 weeks 5 days 22 hours ago) and read 19924 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.

User currently offlineb2319 From China, joined Jan 2013, 145 posts, RR: 0
Reply 15, posted (1 year 5 months 3 weeks 5 days 22 hours ago) and read 19902 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


User currently offlineenilria From Canada, joined Feb 2008, 7046 posts, RR: 13
Reply 16, posted (1 year 5 months 3 weeks 5 days 21 hours ago) and read 19824 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.


User currently offlinerwy04lga From United States of America, joined Jul 2005, 3176 posts, RR: 8
Reply 17, posted (1 year 5 months 3 weeks 5 days 21 hours ago) and read 19805 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.



Just accept that some days, you're the pigeon, and other days the statue
User currently onlinePSU.DTW.SCE From United States of America, joined Jan 2002, 7529 posts, RR: 28
Reply 18, posted (1 year 5 months 3 weeks 5 days 21 hours ago) and read 19807 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.


User currently offlinecommavia From United States of America, joined Apr 2005, 11454 posts, RR: 61
Reply 19, posted (1 year 5 months 3 weeks 5 days 21 hours ago) and read 19806 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.

User currently offlineenilria From Canada, joined Feb 2008, 7046 posts, RR: 13
Reply 20, posted (1 year 5 months 3 weeks 5 days 21 hours ago) and read 19731 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]

User currently offlinetxjim From United States of America, joined May 2008, 240 posts, RR: 0
Reply 21, posted (1 year 5 months 3 weeks 5 days 21 hours ago) and read 19732 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.


User currently offlineDeltal1011man From United States of America, joined Sep 2005, 9295 posts, RR: 14
Reply 22, posted (1 year 5 months 3 weeks 5 days 21 hours ago) and read 19575 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



yep.
User currently offlineCentralMa From United States of America, joined Apr 2010, 31 posts, RR: 0
Reply 23, posted (1 year 5 months 3 weeks 5 days 21 hours ago) and read 19536 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.)


User currently offlineMd88Captain From United States of America, joined Nov 2001, 1330 posts, RR: 20
Reply 24, posted (1 year 5 months 3 weeks 5 days 21 hours ago) and read 19327 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.

25 Flighty : 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 h
26 enilria : 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
27 Post contains links STT757 : The refinery business is in a major transformation, dozens are closing because they are unprofitable. Hess is closing their joint Venezuelan refinery
28 panamair : On the same call, Richard Anderson was asked if he had any regrets about the Trainer transaction (given the Sandy-related loss): Linda Loyd - Philade
29 mcg : 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 pro
30 DeltaMD90 : 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
31 rwy04lga : Again....Delta isn't running this business, Monroe Energy is. A lot of people seen to want to ignore that fact.
32 Post contains images MaverickM11 : 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, *m
33 Tan Flyr : There have bbeen several articles in business publications about the changes coming to east cast refiners (the ones that are left) . Crudes from Bakke
34 hoMsar : 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
35 rwy04lga : 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 fig
36 Post contains links and images EricR : Until they sell it and inform everyone of what a bad idea it was. Margins on refineries are very thin (low single digits) and new refineries are rare
37 rwy04lga : No, you'd buy the apples at the store for a lower price and resell them at a higher price.
38 mcg : Exactly, well put, thank you. Delta owns Monroe. Monroe is Delta.
39 LAXdude1023 : 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.
40 Post contains images MaverickM11 : Has Conoco said anything about the deal? Kinda like how US said they were hundreds of millions of dollars better off w/o LGA ? How is that different?
41 mayor : There seems to be a few of those, right here on this thread. Conveniently Unless I'm mistaken, I thought the point of the whole thing was for Trainer
42 wjcandee : 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 mis
43 jayunited : 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 ma
44 AeroWesty : 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 fu
45 mayor : 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
46 enilria : 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 bonehead
47 mayor : 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.
48 AeroWesty : By volume, could very well be. Is DL going to ship fuel out from Trainer to SLC or other stations? Don't think so.
49 hoMsar : 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 mark
50 EricR : 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 th
51 mayor : Could it be that they were operating the refinery for different reasons than DL is? Conoco was refining and selling, probably mostly gasoline, while
52 rwy04lga : No. Delta will trade other petroleum byproducts to refineries near Trainer in exchange for jet-A elsewhere.
53 EricR : 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 e
54 mcg : Conoco was absolutely clear before, during and after the sale that the Trainer refinery was losing money.
55 rwy04lga : Please refer to my prior post, #52.
56 Flighty : It was actually a grammatically meaningless sentence. It seemed noncommittal, particularly in light of what you said -- that legally, he almost can't
57 MSPNWA : 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
58 mcg : 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 giv
59 SSTeve : And owning planes simply means they own planes, not that they have the lowest CASM of any obtainable plane and crew.
60 Flighty : It is conceivable that even if the refinery costs some money, like insurance does, it is still worth having, like insurance sometimes is. The refiner
61 EricR : 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
62 Tdan : 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
63 Post contains images mayor : 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, ge
64 AeroWesty : 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 o
65 bobnwa : Jeez, after reading your post one may it makes one wonder if there is anything good about Delta in your mind?
66 brilondon : 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 sour
67 mcg : 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 lo
68 exFWAOONW : 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 op
69 mcg : Don't you think that if jet fuel was more profitable than gasoline Conoco would have adjusted Trainer's output to produce more jet?
70 Post contains links UALWN : 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 i
71 AeroWesty : Your argument dismisses the affect that vertical integration has on this entire discussion. Delta is both the owner of the distiller and its consumer
72 UALWN : Only of about 20% of the end product. See my post above.
73 AeroWesty : By extension, already recognized in my reply #64, and didn't need repeating.
74 MaverickM11 : Like what?
75 UALWN : 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?
76 AeroWesty : If you read the article the OP linked, the Trainer facility requires a more expensive oil, such as Nigerian Forcados. Depending upon the pricing prem
77 AeroWesty : 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 tangenti
78 UA787DEN : So the Airline Industry Management can fail at oil enough to even drive up prices on oil for themselves? Pure skill. Offset a little, but not enough,
79 UALWN : Those were neither an example nor a tangential point.
80 MaverickM11 : 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 grou
81 bongodog1964 : 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 f
82 Post contains images B757forever : 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 oi
83 rwy04lga : 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 Del
84 AeroWesty : 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. N
85 mcg : The problem is that Delta can't sell any of the products produced at Trainer at a profit. Delta loses money on every gallon.
86 mayor : 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 l
87 AeroWesty : 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 p
88 mcg : The evidence is that one can buy refined petroleum products cheaper than manufacturing them at Trainer. The evidence is simple, Trainer lost money fo
89 AeroWesty : 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 i
90 Post contains images rwy04lga : Delta will be trading byproducts from Trainer for jet-A elsewhere. And we also have experience in crop-dusting!
91 mcg : 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
92 Post contains links AeroWesty : 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 ear
93 Post contains links EricR : 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
94 prebennorholm : 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 t
95 STT757 : 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 p
96 Post contains links AeroWesty : 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 clos
97 STT757 : I still don't get it, the lights didn't even flicker in that area, no wind or flooding.
98 Post contains links EricR : 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,
99 AeroWesty : LOL, word for word from the OP's link. Don't you guys ever read the links?
100 Aerowrench : 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 p
101 PassedV1 : 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 t
102 mayor : 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 wh
103 DeltaMD90 : 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 mo
104 alfa164 : 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
105 Post contains links tugger : A very interesting read that relates the complex economics fairly understandably with this quote showing it best: http://www.businessweek.com/article
106 bongodog1964 : Virtually all the profits in the oil business come from exploration and extraction, refining is a low margin activity as is distribution, hence why yo
107 alfa164 : Tugg, that is a great analysis!
108 alfa164 : 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
109 mcg : 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 losin
110 bongodog1964 : 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
111 alfa164 : No... they are costing the wholesale market price less the "crack spread" - that crack spread is baked into the current wholesale price. Delta doesn'
112 STT757 : 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 collaps
113 enilria : Flighty: Correct, his comment could also mean that they have become more certain that the investment was not prudent. His statement *implies* that he
114 bongodog1964 : 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'
115 exFWAOONW : 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 t
116 mcg : 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
117 PSU.DTW.SCE : I think DL has actually been pretty clear in its statement of current performance and expected performance. DL clearly stated the Q4 performance of T
118 Post contains images STT757 : The future.
119 EricR : 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 brea
120 mayor : Only irrelevant to you. How nice for you. Now, how about reading what I actually said. I said they weren't inexperienced in the "oil" industry becaus
121 tugger : 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
122 enilria : 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 pa
123 bongodog1964 : And to all the investors who found their Delta shares worthless.
124 Post contains links and images diverdave : 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
125 Post contains images MaverickM11 : And I'm sure a refinery is much more liquid than the WN positions that went sour
126 AeroWesty : 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
127 EricR : 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
128 MaverickM11 : Even an asset no one wants, versus a huge fuel hedge market?
129 AeroWesty : 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
130 diverdave : 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 be
131 Post contains images rwy04lga : 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
132 mayor : I heard it somewhere (probably on here) but couldn't tell you for sure.
133 Post contains images rampart : No, it would be this. They already borrowed their logo. -Rampart
134 mayor : Well, the Widget has been around since the 60s.........how long has the CITGO logo been around?
135 mcg : 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 o
136 tugger : 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 di
137 Post contains images rwy04lga : How did I guess? You, Sir, are delusional. Remember THIS, Delta made 1.6Billion profit last year. How'd YOUR pet airline make out? ? ? ? What? Oh wel
138 mcg : 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.
139 tugger : 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 cos
140 bongodog1964 : "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
141 tugger : 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
142 rampart : 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 w
143 mayor : It's still the "Widget", just colored differently. The shape hasn't changed.
144 mcg : 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 t
145 brilondon : Do they not need to fuel their vehicles at the New York area airports? That is the reason given when they purchased the refinery was to hedge against
146 mcg : 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
147 tugger : 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 follo
148 AeroWesty : GAAP allows for some very creative accounting. For instance, say you are a MNC headquartered in Europe with a manufacturing subsidiary in China which
149 mcg : Given that DL is disclosing quarterly operating results for the refinery, there inter-company flexability is substantially reduced. In the example in
150 AeroWesty : Nope. GAAP reporting is GAAP reporting. All GAAP stands for is "Generally Accepted Accounting Principles". Most nations are moving to IFRS, though. Y
151 alfa164 : 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 - jus
152 rwy04lga : Don't drag your credibility down further.
153 mcg : 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
154 AeroWesty : 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 s
155 Post contains images mayor : It's ONLY been 1 quarter, for heaven's sake!
156 rampart : 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
157 mayor : Well, actually, I think the current livery would work well with the old Widget, either tilted or upright.
158 PSU.DTW.SCE : 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 a
159 Post contains images UALWN : Yeah, I'm sure they need all the gasoline produced in their refinery to fuel their ground vehicles in the New York area. Actually the article (and th
160 Post contains links tugger : 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 th
161 Post contains images enilria : That's what is great about the analyst calls. Occasionally they get flustered and something slips out. Well, as I said earlier, that guy was clearly
162 AeroWesty : 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 perso
163 SSTeve : 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 t
164 diverdave : 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 movin
165 justloveplanes : 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 c
166 Post contains links STT757 : I think a lot depends on whether DL will be able to refine the domestic supplies vs. imports. http://www.cnbc.com/id/100439950
167 wjcandee : 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 t
168 PSU.DTW.SCE : 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
169 mcg : 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
170 Post contains images Flighty : 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 acc
171 wjcandee : I don't believe the facility has done its first QUARTER of normal operations, so you are correct!
172 mayor : 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 a
173 Post contains links cokepopper : 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
174 UALWN : I'm the initial poster, and I don't think I ever said that.
175 mayor : Well, maybe saying this, implied it...... Who put the "genius" in quotes......you or the person that wrote the article?
176 wjcandee : And as amplified by folks like EricR in reply 50.
177 UALWN : I did, quoting people in a.net who said that at the time. But, again, I did not say the following:
178 Post contains links diverdave : 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/si
179 mayor : 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 h
180 Post contains links mayor : Found something about it, but not from here..... http://www.minyanville.com/sectors/e...e-monroe-energy/9/10/2012/id/43839
181 wjcandee : Did you guys notice that NY Harbor gasoline dropped yesterday specifically on the basis that Delta would be restarting a fluid catalytic cracker at Tr
182 wjcandee : 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. D
183 SSTeve : Otherwise known as a freelancer. Doesn't make her wrong, though I tend to have more of a wait-and-see attitude like yourself.
184 wjcandee : 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. f
185 Post contains links AeroWesty : 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
186 wjcandee : Great find, AeroWesty. Another article that's almost-pure conjecture, and interesting to reconcile with the other one. It's also written like a comple
187 Post contains images TVNWZ : 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
188 PSU.DTW.SCE : Wow.....the author has even less credibility than I initially thought.
189 Post contains images jetfixr757 : See the look of surprise on my face . Didn't see it coming now!!!! Jet
190 Post contains links rwy04lga : Capricorn One, with OJ Simpson http://www.imdb.com/title/tt0077294/
191 mcg : 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
192 MSPNWA : 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
193 Post contains images rwy04lga : 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?
194 Post contains links delta2ual : 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 alw
195 AeroWesty : 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
196 Post contains links alfa164 : 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 qua
197 Post contains images B757forever : Funny how the posts on this topic really slowed down...
198 alfa164 : Yep... I guess all the "genius" commentators may be a little flustered...
199 Post contains links AeroWesty : 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
200 mcg : 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 fa
201 AeroWesty : Glad we're in agreement. That's what I said 46 posts ago:
202 mayor : The door swings both ways, bubba.
203 EricR : 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
204 AeroWesty : 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 ag
205 UALWN : 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. A
206 AeroWesty : 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.
207 UALWN : Not exactly a pen name: EconMatters is a group of people.
208 AeroWesty : 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
209 UALWN : Yep, just like every single article in The Economist, for instance...
210 Post contains links AeroWesty : 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, yo
211 UALWN : 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 necessa
212 AeroWesty : 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 commen
213 UALWN : Uh? I was replying to this:
214 AeroWesty : 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
215 UALWN : 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
216 alfa164 : 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 fue
217 wjcandee : 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
218 wjcandee : 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 ofte
219 mcg : 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.
220 mcg : 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 th
221 wjcandee : 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
222 mayor : 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?
223 wjcandee : 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 v
224 UALWN : 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 wi
225 mcg : This is exactly right.
226 mcg : That's the gist of this whole discussion. Time will tell. Last quarters loss was $63 million. Delta did in fact spend $250 million. Time will tell as
227 sprout5199 : 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
228 rwy04lga : 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 pro
229 wjcandee : 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
230 wjcandee : 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 s
231 catiii : 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.
232 Post contains links UALWN : 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. In an ar
233 SSTeve : 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 n
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