America's domestic oil boom, fueled by new "fracking" technology, has been a boon to El Paso-based Western Refining, helping to more than double the company's stock price last year.
Western stock (NYSE: WNR) closed Friday at $29.59, up for the week. A year ago, Western was trading at $11.68.
Western has found itself in the right place at the right time and has profited from the glut of oil in the Permian Basin, which is located in the company's backyard, says Allen Good, an equity analyst with Chicago-based financial-data firm Morningstar.
It's a reversal for Western, which had struggled for years under a heavy debt load and weak refining margins.
Now the company is investing $30 million in new infrastructure, which would connect its El Paso refinery into one of the hottest new oil plays in the country. It is building 50 miles of pipeline, crude oil storage tanks and truck offloading stations in Southeast New Mexico in the Delaware Basin, according to a recent company presentation.
Right now, Western processes 23,000 barrels of the cheaper shale oil, but the infrastructure would be capable of delivering up to 100,000 barrels per day to the El Paso refinery when completed later this year, according to Western Refining spokesperson Gary Hanson.
"It is a great opportunity for us," Hanson says.
Western, one of three publicly traded companies headquartered in El Paso, has also announced it may expand its refinery in El Paso but has not released details.
Right now, Western is a smaller player in the industry. The company has two refineries - the 128,000-barrel-a-day operation in El Paso and the 25,000-barrel-a-day operation in Gallup, N.M.
Analyst Good with Morningstar expects Western's fortuitous market advantage to be an ongoing trend and continue through 2013. But it may begin to diminish, he says, as other new pipelines are built that could alleviate the bottlenecks in the Permian Basin.
Crude oil production from the Permian Basin, one of the largest oil fields in the U.S., reached 1.23 million barrels per day in December, compared to 880,000 barrels per day in 2009, according to data from the U.S. Energy Information Administration.
Nationwide, the oil rush has been driven by advances in a controversial technique called hydraulic fracturing, or fracking. The technique has been widely used in the last decade to unlock vast new sources of natural gas, but only recently used to access oil sealed in subterranean rock formations.
The International Energy Agency forecasts the United States could overtake Saudi Arabia as the world's leading oil producer by about 2020. But the technique has also raised concerns among regulators and environmental groups who believe fracking poses risks to the environment, particularly to water supplies.
Western had struggled for years under a heavy debt load and weak refining margins, raising concerns at times that it might not be able to pay its debts.
In 2007, Western doubled its refining capacity by purchasing Giant Industries for more than $1.1 billion, according to Western's annual report.
Western gained three refineries and retail outlets, but the acquisition also took place at the top of the refining market, saddling the company with a heavy debt load just as the market deteriorated.
In 2008, global demand sent crude oil prices spiraling higher while gasoline prices remained stagnant, weakening refining margins, Western's primary source of revenue.
In November 2009, the company suspended refining operations at its underperforming refineries in Bloomfield, N.M., and Yorktown, Va., eventually selling off the Yorktown refinery and a crude oil pipeline for $220 million, according to a Morningstar analysis.
But the company now finds itself in a much better position, having slashed its debt and cut costs. Western's debt load now stands at $495 million, for a debt/capital ratio of 33 percent, according to the analysis.
Empowered by a stronger balance sheet, Western has returned excess cash flows to shareholders. The company announced Tuesday it would increase its quarterly dividend by 50 percent to tiny_mce_marker.12 per share for the first quarter of this year.
"Our Board of Directors is committed to continuing to return capital to our shareholders. This increased dividend reflects the company's confidence in the continued strength of the margin environment and the investments we are making in our business," Western CEO Jeff Stevens said in a statement.
Most recently, Western Refining reported a third quarter net income of $105.2 million in 2012. The company's net income in 2011 was $146.4 million. Publicly traded since January 2006, Western will announce its fourth quarter and year 2012 earnings on an 8 a.m. Feb. 28 on a conference call. For more information, visit wnr.com.
Email El Paso Inc. reporter Robert Gray at email@example.com or call (915) 534-4422 ext. 105.