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Blacktop Sales Keep Refinery in the Black

Production: Newhall-based Huntway makes asphalt for road projects. Rising crude oil prices hurt its profit margin but other products pick up the slack.


NEWHALL — With crude oil prices climbing to their highest levels in more than 10 years, Huntway Refining Co. sees its profit margins shrinking and increasing at the same time.

Huntway is a specialist in refining crude oil to produce asphalt--a gooey oil that is an essential component in an estimated 90% of the country's roads, according to Warren J. Nelson, Huntway's president and CEO.

Rising crude oil prices squeeze the company's profit on its asphalt sales, as has been the case lately, Nelson said.

At the same time, Nelson says, the rising price means that Huntway can get a higher price for the lighter oils it produces as a byproduct of asphalt refining--partially offsetting the narrower margins on asphalt sales.

The bottom line is that Huntway--which has 80 employees, headquarters in Newhall and operates refineries in Wilmington and Benicia, near San Francisco--posted higher sales and profits for the second quarter ended June 30 despite rising crude costs.

The company's profit nearly tripled to $1.9 million for the second quarter versus $666,000 for the same quarter of 1999, according to its second-quarter financial report, while revenue grew to $46.2 million from $22.7 million a year earlier.

That followed a first quarter in which Huntway lost $254,000 versus a $21,000 profit the year before, but Nelson said first-quarter losses are the rule rather than the exception in the asphalt refining business.

Huntway "normally expects a first-quarter loss due to the decline in paving activity during this period," the company said in its first- quarter report.

Asphalt sales, which total about $6 billion a year in the United States, fall off by about 50% during the first quarter of the year when compared with their peak during the summer months, according to Jeff J. Fishman, chairman and president of, a site for asphalt buyers and suppliers.

Of considerably more concern than the first-quarter loss, according to Nelson, was the notification from the New York Stock Exchange in September 1999 that Huntway must boost its market capitalization and shareholders' equity by February next year if it wants to remain listed on the exchange.

The company, founded in 1979, was well within listing requirements of $12 million in market capitalization when it joined the NYSE in 1998, the year it converted from a partnership to a publicly-held corporation.


However, new NYSE rules that went into effect this month require $50 million of market capitalization and $50 million of stockholders' equity--a company's assets minus its liabilities.

Nelson believes the danger of being delisted is a chief factor holding down the company's stock price despite the second-quarter surge in profits and Huntway's results for the year ended Dec. 31, 1999, in which profits rose to $3.7 million on revenue of $111 million, compared with net income of $3.1 million on revenue of $79 million the year before.

Huntway's stock has been stuck under $1 for some time, trading just above 80 cents last week, compared with a 52-week high of $2 and a low of 75 cents.

"I believe the concern about delisting is exerting a downward pressure on the stock price," Nelson said.

Switching to the Nasdaq or the Amex exchange is probably not an option because they have minimum stock price requirements of $5 and $3 respectively, Nelson said, so the company is pushing to meet the NYSE requirements.


Despite the uncertainty about delisting, "We think our stock is significantly undervalued right now," Nelson said.

The delisting question is a dark cloud in what is otherwise a pretty bright financial picture for Huntway, according to Doug Christopher, an analyst with Crowell Weedon in Los Angeles.

The company's rising sales and profits, along with its ability to maintain profits despite increased crude oil prices, suggest that it is operating efficiently, Christopher said.

"If they're holding their own in an environment like this, they should benefit if crude oil prices come down," Christopher said.

Industry observers say that whether crude oil prices will rise or fall is anybody's guess, but demand for asphalt is expected to remain strong under state and federal highway programs.

One boost to the industry was the federal Transportation Equity Act adopted in 1998, said's Fishman. The act provides $217 billion in federal highway and transportation funding, including $15 billion in California, over six fiscal years.

Huntway is hoping to cash in on some of that, said Nelson, who explained that the company has bid to become a supplier of asphalt to paving contractors working on the federal highway projects.

What Huntway provides, for the most part, is the basic asphalt oil, the "black, sticky stuff produced by petroleum refineries" like Huntway, according to the Maryland-based National Asphalt Paving Assn.

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