Cracking Open 2 Oil Refiners

Oil refining has not historically been considered a business with particularly attractive returns on capital, but recent conditions in the oil markets have led to highly desirable conditions for two refiners in particular, HollyFrontier (HFC) and Western Refining (WNR). As a result, and for investors not sold on the longevity of those favorable conditions, both stocks are currently a part of our Investing "universe." Let's take a look at the business, why the going is good at present, whether it can last, and which of these two players is the more attractive choice for investors intrigued by the story.

Oil Refining: The Quick and Dirty

Refining is a relatively simple business to understand. Crude oil pumped out of the ground by exploration and production firms (E&Ps) is then transported to refineries, usually via a network of pipelines and storage terminals. There, crude is heated to separate, or "crack" it into the industrial end products sold by the refiners: gasoline, diesel, jet fuel, asphalt, motor oil, lubricants, and so forth. The profits earned by the refiners are the difference between the prices they can obtain crude at and the prices they can sell their end products for. In the industry, this is sometimes referred to as the "crack spread." Given the volatility of crude oil prices and less volatile nature of end product selling prices, refining can be a quite up and down business, with dramatic peaks and valleys in profitability. In general, though, this is a historically low margin business. Even the most well-run refiners only earn operating margins of 2-3% over the long run, and returns on capital struggle to exceed 10%.

The Flavors of Crude

There are actually over 160 different types of crude oil, but the two that are traded on commodity markets are West Texas Intermediate, or WTI, and Brent. WTI is produced mainly in North America, while Brent is imported. Historically, these two types of crude have been priced fairly close to each other.

However, this has changed dramatically over the past year-and-a-half. Huge production increases in North America, due mainly to shale fracking, have brought a tremendous amount of WTI crude into the system, more than the existing refining, pipeline, and storage terminal system can efficiently process. True to Economics 101, the increasing supply has led to decreasing prices for WTI. Since the start of 2011, WTI has priced between 10-20% lower than Brent, spiking up to above 25% and currently at about a 15% discount.

HFC and WNR: Taking Advantage

This WTI price discount has benefitted refiners that are geographically close to WTI production areas, or are connected directly via pipeline to WTI hubs like Cushing, OK. HFC and WNR are two such refiners. 4 of HollyFrontier's 5 refineries fit this description (Cheyenee, El Dorado, Navajo, and Tulsa), and WNR operates 2 refineries, in El Paso, and Gallup, New Mexico, both in the region. Easy access to lower-cost WTI gives them a cost advantage against other refiners, and this can be seen in the margins. While firms like Valero (VLO) and Tesoro (TSO) continue to generate gross margins around 10%, HFC and WNR produced 18% and 17%, respectively, for 2011. In the refining business, where revenue levels are tremendous (HFC was over $15.5 billion last year), each point of margin leads to big gains in profits.

Can It Last?

HFC and WNR are in our investing universe because the market doesn't believe the current situation will last indefinitely. Steps are already being taken to free up the WTI backlog. The Seaway pipeline from Cushing to the Gulf Coast was recently reversed, sending flow out of Cushing to alleviate the bottleneck. Combined with planned new refining and pipeline projects, over time the WTI/Brent spread will most likely reduce back to more historically normal levels. But this could take some time to come to fruition.

Which is Better?

Let's take a quick look at the metrics:

Earnings Yield: HFC 29.3%, WNR 29.9%.

Free Cash Yield: HFC 19.1%, WNR 19.9%.

Dividend Yield: HFC 1.86%, WNR 0.78%.

Debt-to-Equity Ratio: HFC 0.25, WNR 1.02.

Interest Coverage Ratio: HFC 20.9, WNR 5.8.

Clearly, the numbers are in favor of HFC. It is in much better financial condition than WNR, pays a better dividend (with 2 special dividends in the past year), is larger and more diversified (particularly after the Frontier merger), and boasts a seasoned management team. If the refining story sounds intriguing, HFC looks to be the better pick of the two.

The Wrap

I'm not a big fan of either stock as an ... refining is just too unpredictable and historically difficult of a business. And neither stock looks particularly cheap against reasonable future expectations. These kinds of situations are difficult to handicap in our investment universe - sometimes favorable conditions last long enough to generate ongoing great results, sometimes they do not. We are more interested in finding the sustainably great businesses the screen turns up.

Disclosure: No positions in any stocks discussed in this article

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Republicans refine immigration message after Obama's policy scoop (CNN)

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Timur Bekmambetov Talks Wanted 2

For anyone who was clamoring for Wanted 2, it?s been a disappointing past four years.? After listening to Mark Millar talk out of his ass about how far the sequel is coming along, Angelina Jolie dropped out, but then there was a glimmer of progress when original writers Derek Haas and Michael Brandt signed on last fall.? Since then, word has been quiet, but director Timur Bekmambetov provided an update on the project this past weekend at the press junket for Abraham Lincoln: Vampire Hunter.

Hit the jump for more.

Speaking to The Playlist, Bekmambetov said that they had been stuck on how to proceed on a sequel where most of the cast had died in the first movie and the characters took their orders from a quilt.? But now it looks like they?ve cracked the story:

?An unbelievable thing happened three weeks ago,? Bekmambetov said. ?Because we stopped, we didn?t know what to do for three or four years. Three weeks ago I came up with a great idea and I pitched this idea and everybody fell in love with it. And now I think we?re on track. Right now the writer is working on the script, and it will be shocking.?

Bekmambetov wouldn?t go into details regarding this ?great idea? that ?everybody fell in love with?, but he said it would continue the story of James McAvoy?s character, Wesley Gibson.? ?Other people are dead, you know, we can?t bring them back,? said Bekmambetov.? ?The story is the same character, same mythology, but it?s got a great twist.?? I?m not sure what the twist is, but I hope it will involve the old ?Explosive Rodent? gambit.

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A welcome let-up in health costs that may not last

WASHINGTON (AP) ? Health care spending has eased up recently, a welcome respite for government and corporate budgets. But why has it? And will relief last or are medical costs on a roller coaster, like gas prices?

One explanation for the slowdown says it's a temporary consequence of the recession and an economy that can't seem to hit its stride. A more hopeful view says American medicine is moving from disjointed solo practice to teamwork models aimed at keeping patients healthier, and that's a permanent change.

It's not a stretch to say the future of U.S. health care depends on the answer. If the system can reform itself from within to reduce waste and deliver better results, it will help stave off sharp cuts to hospitals and doctors, as well as more cost shifts to their patients, working families with employer coverage and older people in Medicare.

Two doctors ? one in Washington state, the other in Montana ? come to different conclusions about what they're seeing.

Dr. Glen Stream of Spokane, Wash., says he sees the reason for the slowdown through patients in his examination room. A 55-year-old tech worker with diabetes, self-employed and uninsured after being laid off, is unable to afford brand-name medications. A 50-year-old woman at risk of liver cancer is refusing regular MRI scans for early detection. Although she has fairly good insurance, the copayments are too high.

"Far and away it is related to economic issues," Stream said. "I see people who have medical conditions who I should be seeing every three months. They tell me they can only afford to come in every six months or once a year."

Dr. Doug Carr of Billings, Mont., doesn't dispute the impact of the economy, but says long-lasting improvements are coming together beneath the surface and will emerge.

Carr is medical director for education at the Billings Clinic, in the forefront of developing something called a "patient-centered medical home." It's basically general-medicine doctors, physician assistants and nurses who closely follow patients with chronic illnesses to try to keep them from developing complications that require hospital treatment. More than 30 states are experimenting with the model, as are Medicare and major insurers and employers.

"We are seeing in early pilots up to a 10 percent reduction in premiums," said Carr. The savings stem mainly from fewer trips to the emergency room and less hospitalization, but also from better coordination that avoids duplicative and pricey imaging tests.

"You can pay for an awful lot of doctor visits by avoiding a single MRI," Carr pointed out. Medical homes embrace computers for tracking blood pressures, blood sugar levels and other vital indicators of how their patients are doing.

So far, the officials keeping score of the nation's health care costs are skeptical.

"It's too early to say that something significant and dramatic and permanent has occurred," said Stephen Heffler, director of national health statistics for Medicare's Office of the Actuary, responsible for economic estimates.

The country's health care tab grew more slowly in 2009 and 2010 than at any other time in the more than 50 years the government has tracked it closely. Estimates suggest the 2011 increase stayed under 4 percent, in line with overall economic growth. That dry statistic has huge implications because health care costs had been growing about 2 percentage points faster than the economy, a pace that breaks the bank. Unfortunately, Heffler's number-crunching unit sees an eventual return to the earlier trend as the economy fully recovers.

But one of Washington's prominent economists says he's convinced something different is happening.

"For the first time, providers are beginning to ask how much their recommended interventions cost and whether there isn't a way to reduce those costs," said Robert Reischauer, former director of the Congressional Budget Office. "Younger physicians are more tech savvy and more interested in a balanced work-family life and more willing to work in teams. So there is lots going on that quite frankly never happened in a convincing way before."

President Barack Obama's health care law, awaiting a Supreme Court decision on its fate, attempts to nudge Medicare into a leading role in the wave of experimentation. The program is trying various strategies to change the behavior of service providers, such as penalizing hospitals with too many preventable readmissions, offering to share savings with medical networks that can operate more efficiently, and promoting coordination among hospitals, rehabilitation centers and home health agencies.

Stream, the Spokane-area doctor, says he hopes such reforms do work. He doubles as president of the American Academy of Family Physicians, a professional society heavily committed to the new direction. But in the meantime, Stream worries about his economically pressed patients.

The woman at risk for liver cancer is doing well, but Stream said he is concerned she may eventually develop a tumor that is not detected early enough.

The tech worker with diabetes is on maximum doses of generic pills, the best he can do on his budget. But his blood sugar is not well controlled. He is beginning to develop complications.

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No Way Out 2012 results

WWE.com will bring you complete No Way Out 2012 results starting Sunday evening. Will Raw and SmackDown General Manager John Laurinaitis hear the words "You're fired"? Whose side will AJ fall on during the WWE Championship Triple Threat Match? Can "The Showoff" Dolph Ziggler unseat World Heavyweight Champion Sheamus?

No Way Out 2012 scheduled matches:

Steel Cage Match - If Big Show loses, John Laurinaitis is fired
John Cena vs. Big Show (Preview)

WWE Championship Triple Threat Match
CM Punk (c) vs. Daniel Bryan vs. Kane (Preview)

World Heavyweight Championship Match
Sheamus (c) vs. Dolph Ziggler (Preview)

Intercontinental Championship Match
Christian (c) vs. Cody Rhodes (Preview)

Divas Championship Match
Layla (c) vs. Beth Phoenix (Preview)

Tuxedo Match
United States Champion Santino Marella vs. Ricardo Rodriguez (Preview)

Pre-Show Match
Brodus Clay vs. David Otunga (Preview)

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Radiohead Stage Collapse Kills One

Accident in Toronto left two others injured. All three men were likely members of Radiohead's tour crew.
By Jonathan Goldner

The collapsed section of stage at Toronto's Downsview Park
Photo:

A massive section of ironwork collapsed at Toronto's Downsview Park Saturday afternoon prior to Radiohead's planned show there, leaving one dead and three injured.

According to Toronto Police, the deceased man was in his thirties. Given that the show was not yet open to the audience, he was likely a member of Radiohead's tour crew. The man's name is not yet being released until such time as police are able to notify his family. Two of the injured were treated and released with minor injuries. The third, 45 years old, sustained a serious, but not life-threatening injury to his head.

It's not clear if the victims were working on the elevated metalwork or on the stage level when the collapse occurred.

So far Radiohead's only comment has been via their Twitter, which posted what appears to be a hastily written message just after 5 pm ET. "Due to unforeseen circumstances tonight's at downsview park tonight has been cancelled. Fans are advised not to make their way to the venue."

The CBC spoke to several concessionaires who were on scene at the time of the accident. Alexandra Mihan reported a sound like fireworks, then hearing screaming and gasping. "We turned around, and the entire top of the stage has just collapsed. All of the metalwork and all of the screens had just kind of folded over on top of each other." Photos and videos making their way across the Internet on Saturday painted a similarly grim picture.

Beer vendor Jeff Cole added, "It's very, very fortunate that the gates weren't open, because it would have been pandemonium."

Related Artists

• Radiohead

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Red Sox?take care of?Cubs

By ANDREW SELIGMAN

AP Sports Writer

Associated Press Sports

updated 11:08 p.m. ET June 16, 2012

CHICAGO (AP) - Jarrod Saltalamacchia was struggling, so Bobby Valentine did something drastic.

Bench him? Nope.

Instead, he started him in the cleanup spot for the first time in his career, and for one night, at least, it worked.

Saltalamacchia homered to back a strong start by Jon Lester, and the Boston Red Sox beat the Chicago Cubs 4-3 on Saturday.

"Sometimes crazy times ask for crazy measures," Valentine said. And the way he saw it, batting Saltalamacchia in the fourth slot was one.

He came into the game mired in an 0-for-17 slide but broke out of it with two hits, including a two-run drive in the fourth, and Boston came out on top after dropping eight of 11.

Scott Podsednik and Mike Aviles had two hits apiece, and Podsednik and Will Middlebrooks each drove in a run.

Lester (4-4) and the Red Sox were leading 4-0 when the Cubs rallied in the seventh.

Jeff Baker led off with a bloop double and Welington Castillo walked with one out. Then Luis Valbuena belted a three-run homer for his first hit with Chicago.

Lester struck out David DeJesus before Scott Atchison retired Reed Johnson on a grounder to end the inning. Vicente Padilla worked the eighth and Alfredo Aceves finished for his 16th save in 19 chances.

Pinch-hitter Steve Clevenger started the Cubs ninth with a single, but Aceves struck out Bryan LaHair and got Castillo to bounce into a game-ending double play.

Lester gave the Red Sox just what they needed on the same day Josh Beckett went on the 15-day disabled list with right shoulder inflammation, the latest in a long line of injuries for Boston.

The veteran allowed seven hits, struck out eight and walked one against a team that came in with a .222 average against left-handers, third lowest in the National League.

Jeff Samardzija (5-5) struck out six in 5 1-3 innings for the Cubs after getting roughed up in a loss to Minnesota in his previous start. He was charged with three runs and four hits.

Samardzija was lifted after he issued consecutive walks to David Ortiz and Saltalamacchia. Randy Wells came in, and Middlebrooks drove in Ortiz with a single.

Samardzija's only other glitch was the drive to right by Saltalamacchia on a 1-2 splitter.

"It felt good," Saltalamacchia said. "I talked to (Valentine) as I was walking out (Friday) night and that's exactly what he said. He said `They're gonna start falling because you've been swinging the bat well."'

The Cubs threatened with two out in the sixth, but a breakdown by Alfonso Soriano helped end it.

With runners on first and second, Middlebrooks dropped his hard liner to third. Soriano never ran, though, and was thrown out at first.

A crowd that had seen lapses from him before let him have it on the way to the dugout and when he trotted back out to left field. There were more loud boos when he struck out in the eighth.

But the way Soriano sees it, he didn't deserve that kind of treatment. He said the boos were unfair and there really wasn't much he could do on that play.

"I think that they don't understand the game," Soriano said. "It's a line drive, nothing you can do about it. If it's a ground ball and I don't run, they can do whatever they want. But a hard line drive right at the glove? I don't know what they want."

While the fans made their feelings clear, so did the Cubs. Put simply, they had Soriano's back.

"It's one of those things where 100 percent every player in the history of baseball would do the same thing," manager Dale Sveum said. "I did it a lot, a lot, of times."

Soriano is a lightning rod for fans, though - fair or not.

"Sori takes a lot of heat for a lot of things," Samardzija said. "Obviously, it is what it is. There's not one guy in that locker room that has anything bad to say about him."

NOTES: With Beckett going on the DL, Boston recalled right-handed reliever Clayton Mortensen from Triple-A Pawtucket. Beckett was scheduled to start Sunday. Instead, LHP Franklin Morales (0-1 with a 3.04 ERA in 22 relief appearances) will pitch in his place, with Paul Maholm starting for the Cubs. ... OF Carl Crawford (sprained ulnar collateral ligament in left elbow) "threw the ball really well" from 110 feet, Valentine said. He also took batting practice for the second consecutive day. ... Red Sox RHP Aaron Cook (left knee laceration) will make his first rehab start on Monday with Triple-A Pawtucket and is scheduled to throw 50-75 pitches. ... Valbuena was promoted from Triple-A Iowa on Thursday. ... Actor Vince Vaughn threw out the first pitch and led the seventh-inning rendition of "Take Me Out to the Ballgame."

? 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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