February 20, 2020 / 11:58 AM / 5 months ago

UPDATE 2-Refiner HollyFrontier profit falls short of view, squeezed by higher costs

(Adds CEO comment, background and share price)

Feb 20 (Reuters) - HollyFrontier Corp’s profit fell short of Wall Street expectations for the first time in six quarters on Thursday, as the U.S. refiner was pinched by higher expenses from heavy maintenance and a slump in refining margins.

U.S. refiners have had difficulty getting their hands on low-cost heavy crude as the market deals with production cuts in Alberta, Canada and by the Organization of Petroleum Exporting Countries. The United States’ sanctions on Venezuela and Iran have also curtailed supply.

HollyFrontier’s refinery gross margins, or the difference in what it pays to buy crude and what it earns by selling refined products, fell about 39% to $13.58 per produced barrel.

The company’s refinery operating expenses per throughput barrel rose nearly 12% to $8.02 in the quarter.

Shares of the company were trading down by 1% at $42.38.

Curtailments on oil production in Alberta have boosted the price of Canadian crude and it now trades at narrower discounts to U.S crude, lowering the margin benefits for companies that ran the heavier crude through their refineries.

HollyFrontier’s profit miss echoes that of bigger rival Phillips 66, which also reported a hit to its refining unit mainly stemming from higher maintenance activities.

Refiners conduct maintenance activities, which are planned capital projects, to prevent unexpected shutdowns and accidents.

Still, HollyFrontier’s Chief Executive Officer Michael Jennings, who returned to the top job after four years in January, took a positive view on the company’s margins as it heads into 2020.

“We are optimistic that demand for gasoline and diesel will strengthen into the summer driving season, margins for finished lubricants will remain strong and the base oil market will improve as existing capacity absorbs growing demand for premium base oils,” he said in a statement.

Jennings was the chief executive of Frontier Oil Corp from 2009 until its merger with Holly in July 2011 and became the first chief of the combined company. He has also served as chairman of the board of HollyFrontier.

Adjusted net income attributable to HollyFrontier’s shareholders fell 80% to $78 million in the fourth quarter ended Dec. 31.

On a per share basis, the company reported a profit of 48 cents - missing analysts’ expectations of 52 cents, according to IBES data from Refinitiv.

Sales and other revenue rose nearly 1% to $4.38 billion. (Reporting by Shanti S Nair in Bengaluru; Editing by Subhranshu Sahu, Bernard Orr)

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