US Refiners 'Cautiously Optimistic' About 2011--Analyst

Independent U.S. refiners remain "cautiously optimistic" about 2011, with the prospect of exporting products, restructuring and other transactions on their collective radar screen, a leading energy sector analyst said Friday.

Paul Sankey of Deutsche Bank said the mood at this year's Refiner Conference held this week in Boston was more upbeat than 12 months ago.

"Last year they were totally miserable and refining was the best-performing oil subsector for 2010," Sankey said in a note to clients. "Sell early or buy late? We say buy late."

Sankey said the favorable trends that have driven stock prices for refiners remain in place, such as an increase in economic activity overseas and prospects for stronger fuel consumption in the U.S., where demand for distillates--including heating oil and diesel fuel--"is outright bullish."

Sankey reiterated his overweight ratings on Holly Corp. (HOC), Frontier Oil Corp. (FTO) and CVR Energy Inc. (CVI).

Refinery companies are eying spinoffs of their pipeline and terminal businesses into master limited partnerships in coming months in order to raise capital, Sankey said. Companies pursuing this strategy include Tesoro Corp. (TSO) and Sunoco Inc. (SUN).

Prospects for exports to Latin America remain a theme for refiners such as Valero Energy Corp. (VLO) and Marathon Oil Corp. (MRO).

Sankey also said expectations for gasoline exports to Mexico and diesel-fuel shipments to Europe remain upbeat.

Further, PBF Energy Co. may be expected to remain a buyer of refinery assets, he said. The private equity-owned firm is planning to increase its refining capacity. Last year, PBF Energy bought Valero's oil refinery in Paulsboro, N.J., and another in Delaware City, Del. PBF is backed by Blackstone Group LP (BX) and First Reserve Corp.

Managements are also focusing on cutting costs, improving reliability and selling assets, he said.

Companies such as ConocoPhillips (COP), Holly, PBF Energy and Alon USA Energy Inc. (ALJ) are also combining operations at refineries to save operating costs and create a single, more complex refinery with less overall crude-oil capacity, he said.

-By Steve Gelsi; 415-439-6400; AskNewswires@dowjones.com

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