Frontier Oil Reports Third Quarter 2009 Results

November 5, 2009 7:30 AM EST

HOUSTON--(BUSINESS WIRE)-- Frontier Oil Corporation (NYSE: FTO) today announced a quarterly net loss of $15.1 million, or $0.15 per share, for the quarter ended September 30, 2009, compared to net income of $72.3 million, or $0.70 per diluted share, for the quarter ended September 30, 2008. The third quarter 2009 results included an after-tax inventory gain of $8.6 million, or $0.08 per share, and an after-tax hedging gain of $2.6 million, or $0.03 per share, compared to an after-tax inventory loss of $77.5 million, or $0.75 per diluted share, and an after-tax hedging gain of $64.5 million, or $0.62 per diluted share, for the comparable period in 2008. The third quarter results also included an accrual of a potential $6.8 million penalty assessed by the Environmental Protection Agency related to waste and wastewater handling at the Cheyenne refinery.

For the nine months ended September 30, 2009, net income totaled $108.2 million, or $1.03 per diluted share, compared to net income of $177.6 million, or $1.71 per diluted share, for the comparable period in 2008. The results for the first nine months of 2009 included an after-tax inventory gain of $108.5 million, or $1.04 per diluted share, and an after-tax hedging loss of $2.0 million, or $0.02 per diluted share. The results for the comparable nine months of 2008 included an after-tax inventory gain of $87.8 million, or $0.85 per diluted share, and an after-tax hedging loss of $24.7 million, or $0.24 per diluted share.

Refined product margins remained depressed during the third quarter due to continued weak demand and sustained high inventory levels, particularly distillates. Frontier's diesel crack spread averaged $7.94 per barrel in the third quarter of 2009, compared to $26.76 per barrel in the third quarter of 2008 and $6.28 per barrel in the second quarter of 2009. Frontier's gasoline crack spread averaged $7.92 per barrel in the third quarter of 2009, down from $9.42 per barrel in the third quarter of 2008 and $10.85 per barrel in the second quarter of 2009.

Crude differentials improved modestly during the third quarter compared to the second quarter, though still lower than the comparable period of 2008, partially due to strength in the asphalt markets. The light/heavy crude oil differential averaged $6.34 per barrel in the third quarter of 2009, compared to $14.10 per barrel in the third quarter of 2008 and $4.53 per barrel in the second quarter of 2009. The WTI/WTS differential averaged $1.62 per barrel in the third quarter of 2009, compared to $2.77 per barrel in the third quarter of 2008 and $1.02 per barrel in the second quarter of 2009.

Frontier's total charges for the third quarter of 2009 averaged 177,741 barrels per day ("bpd"), up from an average of 173,954 bpd in the third quarter of 2008 mainly due to the planned coker shutdown in El Dorado during the third quarter of last year. For the fourth quarter of 2009, charge rates are expected to decrease to an average of 136,000 bpd due to the planned maintenance on the FCCU and gasoil hydrotreater at El Dorado.

Frontier's President and CEO, Mike Jennings, commented, "This period of low refining margins continues to challenge domestic refiners, evidenced by recent capacity exiting the system. For Frontier, the balance sheet strength provides endurance, but reporting a quarterly loss is always a disappointment. While many market factors in this economy are beyond our control, we are taking action to improve those within our control. We have launched an initiative at the Cheyenne refinery to improve refining margins. We are working to achieve this initiative through a combination of cost reductions and projects aimed at energy efficiency, yield improvements, and crude flexibility."

For the three months ended September 30, 2009, Frontier generated $21.7 million in cash flow before changes in working capital (note 2), invested $44.9 million in capital expenditures, and paid $6.4 million in dividends during the quarter. As of September 30, 2009, Frontier maintained a cash balance of $487.3 million, which exceeded debt by $139.9 million, and had $720.6 million of working capital. In addition, there were no cash borrowings under the Company's revolving credit facility, which had $339.1 million of borrowing base availability at quarter end.

Conference Call

A conference call is scheduled for today, November 5, 2009, at 10:00 a.m. central time to discuss the financial results. To access the call, which is open to the public, please dial (800) 446-1671 (international callers (847) 413-3362), confirmation number 25516509. A recorded replay of the call may be heard through November 19, 2009 by dialing (888) 843-8996 (international callers (630) 652-3044), passcode 25516509. In addition, the real-time conference call and a recorded replay will be available via webcast by registering from the Investor Relations page of our website www.frontieroil.com.

Frontier operates a 130,000 bpd refinery located in El Dorado, Kansas, and a 52,000 bpd refinery located in Cheyenne, Wyoming, and markets its refined products principally along the eastern slope of the Rocky Mountains and in other neighboring plains states. Information about the Company may be found on its website www.frontieroil.com.

This press release includes "forward-looking statements" as defined by the Securities and Exchange Commission. Such statements are those concerning strategic plans, expectations and objectives for future operations. All statements, other than statements of historical fact, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made by the Company based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

FRONTIER OIL CORPORATION

                      Nine Months Ended             Three Months Ended

                      September 30,                 September 30,

                      2009           2008           2009           2008

INCOME STATEMENT
DATA($000s except
per share)

Revenues              $ 3,148,674    $ 5,150,641    $ 1,200,582    $ 2,198,302

Raw material,
freight and other       2,631,548      4,565,992      1,097,559      1,991,966
costs

Refining operating
expenses, excluding     232,175        244,861        83,701         76,267
depreciation

Selling and general
expenses, excluding     38,937         32,379         13,650         9,876
depreciation

Gain on sale of         -              (44       )    -              -
assets

Operating income        246,014        307,453        5,672          120,193
before depreciation

Depreciation,
amortization and        54,226         48,072         18,099         16,635
accretion

Operating income        191,788        259,381        (12,427   )    103,558
(loss)

Interest expense and
other financing         21,046         7,043          6,709          2,480
costs

Interest and            (1,948    )    (4,691    )    (661      )    (1,056    )
investment income

Provision (benefit)     64,517         79,421         (3,348    )    29,811
for income taxes

Net income (loss)     $ 108,173      $ 177,608      $ (15,127   )  $ 72,323

Diluted (basic)
earnings per share    $ 1.03         $ 1.71         $ (0.15     )  $ 0.70
of common stock

Average diluted
shares outstanding      104,688        103,785        103,747        103,920
(000s)

OTHER FINANCIAL DATA
($000s)

Adjusted EBITDA (1)   $ 246,014      $ 307,453      $ 5,672        $ 120,193

Cash flow before
changes in working      209,467        233,648        21,704         95,707
capital (2)

Changes in working
capital from            (62,401   )    (13,258   )    28,618         4,904
operations

Net cash provided by    147,066        220,390        50,322         100,611
operating activities

Net cash used in        (121,574  )    (167,674  )    (44,865   )    (45,198   )
investing activities

Net cash provided by
(used in) financing     (21,710   )    113,913        (6,500    )    187,375
activities

OPERATIONS

Consolidated

Operations (bpd)

Total charges           180,439        153,857        177,741        173,954

Gasoline yields         83,809         72,508         84,913         78,755

Diesel yields           70,649         53,205         67,167         66,424

Total sales             182,890        157,782        178,163        177,219

Refinery operating
margins information
($ per bbl)

Refined products      $ 63.03        $ 119.91       $ 73.02        $ 128.47
revenue

Raw material,
freight and other       52.71          105.62         66.96          122.18
costs

Refinery operating
expenses, excluding     4.65           5.66           5.11           4.68
depreciation

Depreciation,
amortization and        1.08           1.11           1.10           1.02
accretion

Cheyenne Refinery
light/heavy crude     $ 5.96         $ 17.64        $ 7.11         $ 14.02
oil differential($
per bbl)

WTI/WTS differential    1.44           4.13           1.62           2.77
($ per bbl)

El Dorado Refinery
light/heavy crude       5.71           19.15          5.69           14.33
oil differential($
per bbl)

BALANCE SHEET DATA    At September 30, 2009         At December 31, 2008
($000s)

Cash, including cash                 $ 487,314                     $ 483,532
equivalents (a)

Working capital                        720,571                       651,352

Short-term and                         -                             -
current debt (b)

Total long-term debt                   347,416                       347,220
(c)

Shareholders' equity                   1,150,111                     1,051,140
(d)

Net debt to book
capitalization                         -13.8     %                   -14.9     %
(b+c-a)/(b+c-a+d)

(1) Adjusted EBITDA represents income before interest expense and other financing costs, interest and investment income, income tax, and depreciation, accretion and amortization. Adjusted EBITDA is not a calculation based upon generally accepted accounting principles; however, the amounts included in the Adjusted EBITDA calculation are derived from amounts included in the consolidated financial statements of the Company. Adjusted EBITDA should not be considered as an alternative to net income or operating income, as an indication of operating performance of the Company or as an alternative to operating cash flow as a measure of liquidity. Adjusted EBITDA is not necessarily comparable to similarly titled measures of other companies. Adjusted EBITDA is presented here because the Company believes it enhances an investor's understanding of Frontier's ability to satisfy principal and interest obligations with respect to Frontier's indebtedness and to use cash for other purposes, including capital expenditures. Adjusted EBITDA is also used for internal analysis and as a basis for financial covenants. Frontier's Adjusted EBITDA for the nine months and three months ended September 30, 2009 and 2008 is reconciled to net income as follows:

                             Nine Months Ended         Three Months Ended

                             September 30,             September 30,

                             2009         2008         2009         2008

Net income (loss)            $ 108,173    $ 177,608    $ (15,127 )  $ 72,323

Add provision (benefit) for    64,517       79,421       (3,348  )    29,811
income taxes

Add interest expense and       21,046       7,043        6,709        2,480
other financing costs

Subtract interest and          (1,948  )    (4,691  )    (661    )    (1,056  )
investment income

Add depreciation,              54,226       48,072       18,099       16,635
amortization and accretion

Adjusted EBITDA              $ 246,014    $ 307,453    $ 5,672      $ 120,193

(2) Cash flow before changes in working capital represents cash flow excluding the effects of changes to cash flow related to changes in working capital. Cash flow before changes in working capital is not a calculation based upon generally accepted accounting principles; however, the amounts included in the cash flow before changes in working capital calculation are derived from amounts included in the consolidated financial statements of the Company. Cash flow before changes in working capital is presented here because the Company believes it enhances an investor's understanding of Frontier's cash flow irrespective of the cash used in or provided by the working capital accounts. Frontier's cash flow before changes in working capital for the nine months and three months ended September 30, 2009 and 2008 is reconciled to net income as follows:

                              Nine Months Ended         Three Months Ended

                              September 30,             September 30,

                              2009         2008         2009         2008

Net income (loss)             $ 108,173    $ 177,608    $ (15,127 )  $ 72,323

Depreciation, amortization      69,194       61,082       23,153       21,296
and accretion

Deferred income taxes           12,097       15,684       7,284        2,214

Stock-based compensation        15,193       13,736       4,440        3,934
expense

Excess income tax benefits      (227    )    (4,201  )    (76     )    (266    )
of stock-based compensation

Amortization of debt            1,117        603          373          260
issuance costs

Senior notes discount           196          8            67           8
amortization

Allowance for investment        500          411          -            411
loss and bad debts

Gain on sales of assets         -            (44     )    -            -

Amortization of long-term       -            909          -            303
prepaid insurance

Increase (decrease) in other    11,357       (1,331  )    8,467        (3,219  )
long-term liabilities

Changes in deferred
turnaround costs, deferred      (8,133  )    (30,817 )    (6,877  )    (1,557  )
catalyst costs and other

Cash flow before changes in     209,467      233,648      21,704       95,707
working capital

Changes in working capital      (62,401 )    (13,258 )    28,618       4,904
from operations

Net cash provided by          $ 147,066    $ 220,390    $ 50,322     $ 100,611
operating activities

    Source: Frontier Oil Corporation

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