Exxon Mobil Corporation (XOM), Phillips 66 (PSX), and A Potential Increase in Refining Margins

The bottom line

Out of the companies with refineries in the Gulf Coast region, Exxon Mobil Corporation (NYSE:XOM) has the most refining capacity. However, the majority of Exxon Mobil Corporation (NYSE:XOM)’s profits are from its upstream operations. In 2012, the company’s US downstream operations accounted for just 8% of the company’s earnings. Thus, any benefits of the Keystone expansion to Exxon Mobil Corporation (NYSE:XOM) will probably be minimal.

On the other hand Phillips 66 (NYSE:PSX), Valero, and Alon USA Energy, Inc. (NYSE:ALJ) generate the majority of their profits from refining. These companies should see improvements in margins in their Gulf Coast refineries when the southern leg of the Keystone pipeline is completed. The Keystone XL expansion, if constructed, will provide additional benefit.

Overall, easier access to Canadian oil sands and the glut of oil in Cushing should benefit these refiners. Valero, Phillips 66 (NYSE:PSX), and Alon USA Energy, Inc. (NYSE:ALJ) have PE ratios of just 10.8, 9.6, and 13.2, respectively, so the companies are potentially good investments. It should be noted that Phillips 66 (NYSE:PSX) has mid-continent refineries. These refineries might see a drop in margins when the southern expansion is completed.

Alvin Gonzales owns shares of Valero Energy. The Motley Fool has no position in any of the stocks mentioned.