Tesoro Corporation Announces Fourth Quarter and Year-End Results
SAN ANTONIO - January 31, 2008 - Tesoro Corporation (NYSE:TSO) today reported a net loss of $40 million, or $0.29 per share, for the fourth quarter of 2007 compared to net income of $158 million, or $1.14 per share, for the fourth quarter of 2006.
In comparison to last year, weak crack spreads, higher operating expenses and poor marketing margins negatively impacted earnings at the company's West Coast refineries. The Hawaii refinery posted an $86 million pre-tax operating loss for the quarter compared to a $19 million pre-tax operating profit for the same period a year ago. In Hawaii, finished product prices did not reflect the rapidly rising cost and premiums paid for crude which accounted for most of the quarter to quarter difference. Additionally, an unplanned outage on the refinery's reformer unit during the period negatively impacted results by an estimated $30 million, including $10 million of higher repairs and maintenance expenses.
In total, quarterly refining operating earnings were $9 million compared to fourth quarter earnings of $284 million a year ago. "The Company has made significant improvements in crude purchasing and product sales at all of our refineries with the exception of Hawaii but lower benchmark margins in the Western United States overwhelmed these improvements and account for most of the quarter to quarter change. In Hawaii, the disappointing financial results are due to a combination of factors and the company has developed an action plan to address the myriad issues there. Improved reliability, changes to our crude slate to reduce the amount of Asian light sweet crude oil used which has been selling at lofty premiums and a greater focus on achieving better value for commercial products marketed in Hawaii are among the key initiatives we have undertaken," said Bruce Smith, Chairman, President and CEO of Tesoro.
Benchmark margins versus last year were lower by 23% on the West Coast, 36% in the Pacific Northwest, and 7% in the Group 3 (Midwest) region. "In the fourth quarter of 2006, we experienced record crack spreads on the West Coast. In contrast, during the 2007 fourth quarter, West Coast product inventories rose due to higher refinery utilization rates at a time of weakened demand in part due to both economic slowdown and inclement weather in California during the end of December. Three factors should have a positive impact on the outlook for spring margins - lower planned production runs combined with the impact of planned turnarounds, the seasonal reduction of gasoline inventories due to the transition into summer-grade gasoline and increased seasonal demand," added Smith.
"Excluding Hawaii, for the fourth quarter, all regions achieved at or near record capture rates for the year due to our capital improvement and optimization efforts" said Smith. The two sulfur handling projects at our Anacortes refinery, which were completed in the third quarter, give us the flexibility to increase the use of discounted Canadian sour crude. Optimization efforts throughout the system, especially in California, continue to add new crude flexibility and product upgrade opportunities. In the Mid-Continent region, we were able to shift our crude slate to take advantage of more deeply discounted local light sweet crudes. "Our capital and optimization focus is on lowering our operating and raw material costs at all our refineries," added Smith.
For the full year of 2007, the company reported net earnings of $566 million, or $4.06 per diluted share, versus earnings for the full year of 2006 of $801 million, or $5.73 per share.
"In 2007, Tesoro had many notable successes and fulfilled several goals. We acquired and fully integrated the Los Angeles refinery and California retail assets and subsequently reduced debt to achieve a year-end debt-to-capitalization ratio of 35%. The addition of these assets permitted us to achieve $45 million in synergies for the year, mainly through shared crude cargo benefits, and we are confident that we will meet our total goal of $100 million in the first twelve months of ownership. In May we doubled the dividend. The Shell and USA Gasoline acquisitions nearly doubled our retail network. Finally, we managed the largest capital program in Company history while achieving record safety performance.
"In 2008, we look forward to completing several income producing projects, realizing additional synergies associated with the addition of Los Angeles and improving profitability in Hawaii," 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 March 17th, 2008 to shareholders of record as of March 3rd, 2008.
Public Invited to Listen to Analyst Conference Call via Internet
At 10:30 a.m., CDT, Thursday, January 31st, 2008 Tesoro will broadcast, live, its conference call with analysts regarding fourth quarter 2007 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 over 445 are company operated under the Tesoro, Shell, Mirastar and USA Gasoline 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 operating enhancements. 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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