Tesoro Corporation Announces Second Quarter Results
SAN ANTONIO - July 30, 2008 - Tesoro Corporation (NYSE:TSO) today reported second quarter 2008 net earnings of $4 million, or $0.03 per share. Net income for the second quarter of 2007 was $443 million, or $3.17 per share. After a marginal tax rate of 39%, unusual items in second quarter 2008 include:
In comparison to last year, lower gross refining margins and higher operating costs were met with reduced refining throughput. Bottom-of-the-barrel products continued their trend of lagging the rapid rise of crude oil prices. During the quarter, fuel oil on the West Coast traded at a $32/bbl discount to ANS crude versus $20/bbl in the first quarter. Total fuel oil production for the quarter was 60 mbpd (thousands of barrels per day) versus a 2007 full year average of 53 mbpd due primarily to planned maintenance activity at our Golden Eagle refinery during the 2008 second quarter. We estimate that our refining operating income was reduced by $71 million or $0.31/share after tax as a result of our refinery turnaround for the planned maintenance. Reported gross refining margins decreased 52% to $10.10/bbl in the second quarter of 2008 compared to $20.98/bbl from a year ago.
Manufacturing costs before depreciation and amortization were $297 million for the second quarter of 2008 versus $286 million a quarter ago. Higher energy cost of $27 million related to the increased use and price of natural gas were offset by an $11 million accrual reversal primarily associated with the retirement of the Golden Eagle fluid coker and $3 million in lower repair and maintenance costs.
"The refining sector continues to be impacted by higher crude and energy costs, and lower demand compared to a year ago. Crude prices were up almost $60 per barrel in the quarter, compared to 2007, while preliminary industry data suggests that demand in California is down approximately 5-6%. As a result of these factors, the benchmark West Coast margin was down almost 40% in the quarter versus a year ago.
"Our opportunities in this type of environment lie in identifying and executing self-help initiatives such as effectively matching production and inventory levels to consumer demand, optimizing product mix towards more profitable diesel fuel and less discounted fuel oil, and reducing expenses," said Bruce Smith, Tesoro's Chairman, President and CEO. Operational improvements for the remainder of 2008 versus the first half of the year include:
2008 Goals Update
In the first quarter, the company announced its goal to realize approximately $750 million to $1 billion of operating cash flow through reductions in operating costs, capital expenditures and working capital to fund short term debt reductions and the $870 million capital program, including turnarounds. As of July 30th, there were no borrowings on the revolver and the company had a cash balance of approximately $100 million.
"The company has done an excellent job executing the plan to lower costs, inventories and capital expenditures without sacrificing safe and reliable operations, and we are positioned to realize further cost reduction initiatives," said Smith.
Board Declares Quarterly Dividend
Tesoro announced today that its Board of Directors has approved a regular quarterly cash dividend of $0.10 per share. The dividend is payable September 16th, 2008 to shareholders of record as of September 2nd, 2008.
Public Invited to Listen to Analyst Conference Call via Internet
At 7:30 a.m., CDT, Thursday, July 31st, 2008 Tesoro will broadcast, live, its conference call with analysts regarding second quarter 2008 results and other business matters. Interested parties may listen to the live conference call over the Internet by logging on to Tesoro's Internet site at http://www.tsocorp.com.
Tesoro Corporation, a Fortune 150 Company, is an independent refiner and marketer of petroleum products. Tesoro, through its subsidiaries, operates seven refineries in the western United States with a combined capacity of approximately 660,000 barrels per day. Tesoro's retail-marketing system includes over 900 branded retail stations, of which nearly 445 are company operated under the Tesoro, Shell, Mirastar and USA GasolineTM brands.
This earnings release contains certain statements that are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning the market environment, and our expectations about expense and capital reductions. For more information concerning factors that could affect these statements see our annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. We undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances that occur, or which we become aware of, after the date hereof."
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