Delta's Oil refinery

[n757st]

This is all about the crack spread of jet-a, which is at an all time high of around 25 dollars a barrel right now. At that price the refinery probably isnt a risk, but if it drops to historical numbers like $10 delta could lose its shirt.... I think I have that correct, feel free to correct me.

 

[General Lee]

Once again, the refinery purchase is simply a hedge on crack spread prices. It has no impact on the price of a barrel of oil paid by Delta.

I'll give Delta a mulligan through 2013 on the Trainer refinery, but I doubt that it will ever be a success for Delta. I expect the Trainer refinery to be a drag on Delta's earnings until they decide to sell it.

Other than this misstep, Delta's management seems to be making a lot of smart moves. But no one's perfect.

Andy,

Again I disagree. First of all, DL will probably use Bakken oil from ND, and that is priced at WTI prices, a significant advantage over the current Brent crude prices used when shipping oil in from Nigeria etc. There are costs for shipping it via rail, but any advantage is key these days, and oil is already higher this month than it has been in normal Winter months. If it is this high now, what will it be this Summer? The higher the price, the better DL is with this refinery. Yes, initial start up costs have been high, and Sandy didn't help. I believe management stated it could take awhile to show an operating profit, but higher oil prices will help push DL there. And, oil people are running that subsidiary, not airline people (directly).


Bye Bye---General Lee

 

[nwaf16dude]

I had a chance to talk to Ed Bastian (Delta CFO) about the refinery back in the fall, right around the time the refinery started production and before Sandy hit. I asked him about all the negative press. He said that most of the negative stuff was coming from Oil traders that stood to lose money if this venture was successful. Delta's interest in refining runs counter to the Oil trader's interests. Delta isn't in the refining business to make profits on production. We are in that business to reduce the cost of the refined products. If we can cover the cost of running the refinery, we are happy as long as we are, in the big picture, reducing our overall fuel bill. Honestly, if we lose slightly at the refinery, we are still happy as long as the overall fuel bill is reduced enough.

All that being said, It does sound like a bit of voodoo going on, and I'm taking a wait and see stance on the whole thing. I'll give it a year or two before I decide if it was a good move or not. For those of you slamming Delta for trying to run a refinery...surely you know that we aren't trying to run it without oil industry experts?

 

[ackattacker]

I think nwaf16dude has it right.

The thing is, keeping the refinery going actually helps airlines everywhere.... even Delta's competitors to some extent. Remains to be seen if it gives them a competitive advantage.

 

[Andy]

The thing is, keeping the refinery going actually helps airlines everywhere.... even Delta's competitors to some extent. Remains to be seen if it gives them a competitive advantage.

It's funny you say that. When I read that Delta was optimizing the refinery for Jet A production, I was thinking the exact same thing. By converting a higher percentage of crude oil into Jet A, the result should be that the supply of Jet A is increased vis a vis other refined products.
I can easily see where other airlines can 'free ride' off of Delta's refinery by driving down Jet A prices.

 

[labbats]

Seems to me the government should let airlines run airlines and allow them to create a separate ticket charge for the fuel costs on date of departure.

Sadly this isn't allowed.