Delta’s Trainer refinery jumps to profit in Q2

Washington DC
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Delta Air Lines’ Trainer refinery generated a $13 million profit in the second quarter, as the facility continues to increase its use of domestic crude oil.

The profit is a turn around from a $51 million loss in the second quarter of 2013, and only the second quarterly profit for the refinery since Atlanta-based Delta bought the facility for $180 million in June 2012.

Trainer has lost about $217 million since operations began in late 2012.

Delta realised a one cent per gallon benefit to its fuel bill from the refinery in the second quarter.

The airline spent an average of $2.93 per gallon, including gains from Trainer and hedges, on jet fuel during the quarter.

Delta is focused on increasing the use of domestic crude at the facility. It sourced about 40,000 barrels per day of domestic oil in the second quarter and, with a new supply agreement for 65,000 barrels per day of Bakken crude with Bridger, is on track to meet its goal of 70,000 barrels per day of domestic crude by the end of the year.

“This should create additional benefit for the back half of the year and significant headwinds for 2015,” says Paul Jacobson, chief financial officer of Delta, during an earnings call today.

Domestic crude costs between $2 to $3 per barrel less than the imported West African crude that Delta also uses at Trainer.

Trainer is still expected to only break even in the third quarter, despite the increase in local supply. Jacobson says that this is due to low crack spreads for distillates, which include jet fuel and diesel.

Delta can overcome the low spreads by further increasing the supply of domestic crude, which lowers costs at Trainer, he adds.

The crack spread is the difference between the price of a specific distillate and a barrel of oil.

Trainer has proven a challenging investment for Delta. The facility has not generated the level of profits – nor produced as much jet fuel – as the carrier expected when it first bought the plant. However, it has pushed crack spreads down and lowered prices for jet fuel overall in the New York market as a whole.

The refinery produced about 40,000 barrels per day of jet fuel in June, which represents nearly 22% of its 185,000 barrels per day production capacity.