23 September 2013 Americas Equity Research Energy

US Independent Refiners Research Analysts Edward Westlake 212 325 6751 [email protected] Rakesh Advani, CFA 212 538 5084 [email protected] Scott Willis, CFA 212 325 2664 [email protected]

FORECAST REDUCTION

More Bad News Beneath the Surface ■ Bottom-line: It never rains, it pours. Headline refining margins and WTIBrent spreads are tough enough in the seasonal weak point for US demand (Sep-Feb). However, we have been doing some digging on product realizations along major pipe arteries such as Colonial. Partly due to RIN distortions in the market, we note that the sales price of gasoline at the rack in Atlanta has collapsed versus the Gulf Crack i.e. Gulf coast refiners selling their product up the Colonial pipeline will make less money than the Gulf Coast crack suggests. This may help explain some of the recent commentary from refiner management teams e.g. why VLO’s capture rate did not bounce back from low 2Q levels given wide light-heavy spreads in 3Q and MPC comments that their data pack of margin indicators is a less reliable indicator of profitability. We take this opportunity for a further mark to market, notably of 3Q/4Q conditions and remain 10-15% below consensus EBITDA. We also lower our TP for ALDW to $20 to reflect our updated assumptions (i.e. 3Q/4Q conditions + capture rate). Of course, tough times in refining will impact the majors also, notably XOM - consensus EPS will need to adjust accordingly. ■ Racks vs Cracks: Refining analysts tend to use benchmark product cracks to track industry profitability e.g. Gulf Coast 3-2-1. Refiners don’t capture these benchmarks fully. We track the capture of benchmarks with a capture rate (