May 4, 2012:

Western Refining on Thursday reported a $53.5 million loss on paper in the first quarter due to accounting rules tied to the company's price hedging contracts on future fuel production. In reality, the El Paso company had a first-quarter profit of $85.1 million, or 81 cents a share, it reported. The $53.5 million is "not an actual cash loss. It's an accounting function," said Gary Hanson, a Western spokes-man.

The company each quarter has to report how much of a non-cash gain or loss it has on its hedging contracts, which lock in certain sales prices on about a third of its fuel production. In the first quarter, the company calculated a $218 million non-cash loss because the hedging contracts have lower profit margins than current margins. That resulted in the company's $53.5 million loss in the quarter.

Even though the hedging contracts can result in the company reducing its profits, they are still good for the company and shareholders because they lock in some good prices for part of its production and reduce the company's exposure to the low end of volatile fuel prices, Hanson said. The company had higher profit margins in the first three months of this year than for the same period in 2011 because it uses West Texas crude oil in its two refineries -- crude oil that has been less expensive than crude oil used by refineries on the Gulf Coast and East Coast -- it reported.

"Refining margins, particularly in our geographic areas, strengthened during the quarter and exceeded what we achieved in the same quarter last year," Jeff Stevens, Western chief executive officer, said in a written statement. "In this current environment, we have the opportunity to further strengthen our balance sheet" by reducing the company's huge debt at a faster-than-expected pace, Stevens said.

The company expects to reduce its debt by $150 million to $175 million this year, Stevens said. The company's debt was $777 million at the end of March. However, it further reduced the debt in the second quarter by making a $75 million loan payment, it reported. Western's stock closed Thursday at $18.54 a share on the New York Stock Exchange, down 37 cents a share.

Company officials Thursday also gave updates on major facility projects. The company is in the process of building a $25 million crude-oil storage, truck-loading and crude-oil pipeline project in southeast New Mexico. That will allow it to bring in 40,000 barrels a day of shale crude oil from the Permian Basin to its El Paso refinery. Shale crude is produced from rock formations. The truck-loading facility is expected to be completed by the end of the year, and the pipeline extension into an existing Kinder Morgan crude-oil pipeline is to be constructed next year.

The company is also doing the engineering for a proposed expansion of its El Paso refinery to add an additional 25,000 barrels of crude-oil production. The engineering is expected to be completed by the end of the year. Western hopes to begin construction on the project in 2014, but it will need to get governmental approvals.

Vic Kolenc may be reached at vkolenc@elpasotimes.com; 546-6421.More information: westernrefining.com

By Elpaso Times