Updates: Caltex Sees Lower/Higher Profit

Once again we saw a hard to understand profit forecast from Caltex Australia.

The company claimed that under a unique measure used only by itself and the oil industry, earnings would fall 39%, but on the measure used by the rest of corporate Australia net profit is forecast to almost double for the six months to June.

So the credulous in the market saw the negative and priced the company's shares lower by more than 6% at the close yesterday.

The shares lost 78c to $10.60, a loss of 6.8%.

In a statement to the ASX the company blamed the expected "fall" in profit on high oil prices and the strong Australian dollar which hurt margins, as well as refinery outages which disrupted fuel production.

The company, which is Australia's biggest oil refiner, forecast "a replacement cost of sales operating profit" for the six months to June 30 of $100 million-$150 million, down from $163 million in the first half of 2010.

But on a net historic cost profit, which includes the impact of a higher oil price on its stockpiles, and which it uses to work out the tax it pays (and every other company in the country pays tax on and uses in their accounts), Caltex is expecting profit to almost double to $255 million-$275 million, up from $141 million.

That's a profit rise of 64% at the low end and 93% at the top end.

"On a historical cost profit basis, Caltex expects an after tax profit in the range of $255 million - $275 million for the first half of 2011, compared with $141 million, including significant items, for the first half of 2010.

"This includes product and crude oil inventory gains of approximately $160 million compared with an inventory loss of $8 million after tax for the first half of 2010.

"Working capital requirements have increased due to the net impact of higher crude oil prices and exchange rates," the company said.

Any Caltex shareholder who saw the headline yesterday and sold should be kicking themselves. The company's earnings are going to be higher than expected, not lower.

The big test of just how much profit was made will be the level of interim dividend paid to shareholders.

Caltex said its refiner margin was squeezed by a jump in Brent crude prices and premiums driven by unrest in the Middle East and North Africa and Japan's March 11 earthquake and tsunami.

"The average Singapore Weighted Average Margin for May 2011 was US$12.05/bbl as product margins continued to receive support from strong product prices driven by the on-going situation in Libya and Japan and strong Asian demand," Caltex said in a separate statement to the ASX on its refiner margins (CRM).

"The crude oil price eased through May, positively impacting the CRM as the Dated Brent crude oil benchmark fell to a month average of about US$115/bbl compared with US$123/bbl in April 2011.

"However, the tightness in regional crude oil markets continues, resulting in premiums continuing to be paid over and above the Dated Brent benchmark price.

"The 7 day lag impact in May due to the fall in crude price has partially offset the negative lag impact accumulated in the Refining result through the months of January to April.

"The CRM sales from production were lower than expected in May due to the overrun of the Kurnell planned maintenance after substantial emergent work.

"This extension to the planned shutdown, combined with an unplanned outage at Lytton, resulted in reduced refinery production which required substitution by prompt cargoes of imported finished product to meet Marketing sales demand.

"While the increase in imports is not reflected in the resultant CRM, this has negatively impacted the Refining result for the month." the company said.

In other words, the company had to buy cargos of petrol, jet fuel and other products to cover the shortfalls from the Lytton and Kurnell refinery closures.

Those purchases would have been made at prices higher than expected, which would have eaten into the refiner margin.

Oil prices fell again yesterday, down to $US112 for Brent type crude, a drop of another 1% or more on the day.