Updates
December 6, 2013: Delta Airlines refinery returns a profit.
Original Post
Link here to Reuters.com. Delta Air Lines Inc plans to run cheaper domestic crude at its newly-acquired Trainer, Pennsylvania refinery to improve profits at the plant, becoming the latest U.S. company to cash in on the burgeoning shale oil boom.
After losing $63 million at the refinery in the fourth quarter, the Atlanta-based airline will receive its first crude shipments there from North Dakota's Bakken shale in the first quarter, the company said during its earnings call Tuesday.
Delta's subsidiary, Monroe Energy LLC, was forced to slow production at the 185,000 barrels-per-day plant in November and December after Hurricane Sandy damaged regional pipelines and terminals, leading to the losses, Paul Jacobson, the company's senior vice president and chief financial officer said during the call.
However, the Trainer refinery will bounce back to a modest profit in the first quarter, Jacobson added.
Let me see if I understand this. An airline that cant get it's act together by delivering airline services (presumably it's core "competency ") now has plans to hit it big as a refiner? Yea that'll work.
ReplyDeleteThere are many, many story lines in the Delta/refinery article. I thought I had posted a long stand-alone post regarding Delta/refinery/core competency but I can't find it, so I must not have.
Delete1. The main story line is this: successful businesses are successful because they figure out what business they are in. The best example is the railroad industry. Twenty years ago they were in trouble; they thought they were in the railroad business. Then someone sorted out they were in the transportation business. Railroads have since come roaring back. Warren Buffett buys BNSF and UNP is hitting all-time highs.
2. Likewise, Enbridge known for its pipeline business, realized it was not in the pipeline business. First it realized it was in the oil shipping business and added rail to its pipeline enterprise. Then it realized it was in the energy business and added solar to its enterprise. I've forgotten if it's added wind, but I wouldn't be surprised.
3. The successful airlines realize they are not in the airline business. The best example is Southwest Airlines. Airlines are in the energy business also, making and losing money on how well they hedge the price of fuel in their six-month contracts buying fuel.
4. So, that's the first story line: Delta recognized it was not in the airline business; it was in the energy business. It just happens to to fly people around. To be continued.
Delta Airlines and the refinery: the second story line. A great story could be written how state government and private sector worked together to save hundreds of jobs at three refineries in Pennsylvania (I can't remember if all three refineries will be "saved" but the point is made).
DeleteThe third story line: how the Bakken has changed everything. So many naysayers said the Bakken was hyped. Not.
The fourth story line: the crude-by-rail story that does not need repeating here.
The fifth story line: just the link -- http://www.milliondollarwayblog.com/2013/01/thursday-links.html.
The sixth story line: opportunity, as you suggest, to see how this works out.
For me, in the past two or three days, since starting to read "Debt: The First 5,000 Years" I have become suddenly even more optimistic than I was six months ago. I have been arguing for the past year the likelihood of a severe recession in 2013. In the past 72 hours, I have turned 180 degrees, expecting a phenomenal continuation of the bull run that we are seeing in the stock market.
Win, lose, or break even regarding Delta/refinery/core competency concerns me not. I have no dog in that fight. But look at all the story lines that I can write about. Wow.
For the record:
Delete1) DAL is at a 52-week high; and I believe a 2-year high.
2) It's profit margin is 4%.
3) Forward P/E: 5
4) Market cap: $12 billion
5) Gross profit (ttm): $14 billion
6) Diluted EPS; $1.68
7) Total cash: $3 billion
This is not an investment site. Just confirming what I thought I already knew. For the record. This is not rocket science.