Tesoro Corporation Announces First Quarter Results
SAN ANTONIO - May 6, 2008 - Tesoro Corporation (NYSE:TSO) today reported a first quarter 2008 net loss of $82 million, or $0.60 per share, which includes a pre-tax benefit of $45 million, related to a legal settlement regarding the Trans Alaska Pipeline System tariffs. Net income for the first quarter of 2007 was $116 million, or $0.84 per share. First quarter 2008 segment operating loss was $115 million, versus income of $245 million reported in the first quarter of 2007.
In comparison to last year, lower gross refining margins and higher operating costs were partially offset by higher refining throughput. Declining margins for gasoline and bottom-of-the-barrel products including fuel oil, asphalt and petroleum coke drove West Coast benchmark margins down from $30/ barrel (bbl) in the first quarter of 2007 to an average of $14/bbl in the first quarter of 2008. Reported gross refining margins decreased 52% to $6.54/bbl in the first quarter of 2008 compared to $13.50/bbl from a year ago.
For some time, the Company has had programs to increase the flexibility of the crudes used in its system and compared to the first quarter of 2007, the Company took advantage of market opportunities to lower crude costs versus benchmark crude oils, such as Alaska North Slope and West Texas Intermediate. These cost of goods sold reductions included running more advantaged crudes at our Golden Eagle and Hawaii refineries, lower costs for foreign crude grades to the Anacortes refinery, and the benefit of recently negotiated, multi-year, term-contracts for local grades of light, sweet crude delivered to the Mid-Continent region.
Excluding the Los Angeles refinery (which was not owned in the first quarter of 2007), manufacturing costs before depreciation and amortization were $216 million for the first three months of 2008 versus $187 million a year ago. Increases reflect higher energy, catalyst and chemical usage as a result of higher throughput rates than a year ago, combined with higher energy rates. Manufacturing costs for the first quarter of 2008, including the Los Angeles refinery, were $21 million lower than the fourth quarter of 2007. Reductions include $15 million in lower repair and maintenance, primarily at the Golden Eagle and Los Angeles refineries and $21 million in lower environmental costs which are now being recorded in other operating expenses. Total environmental expense for refining was lower by $16 million in the first quarter compared to a quarter ago. Total system energy costs during the quarter were higher by $11 million than the prior quarter.
Total throughput for the first quarter of 2008 was 593,000 barrels-per-day (BPD) and included planned maintenance of the gasoline producing unit at the Anacortes refinery. Excluding the Los Angeles refinery, throughput increased 24,000 BPD, primarily reflecting extended downtime at our Golden Eagle refinery during the first quarter of 2007.
Hawaii Refinery Update
In the fourth quarter, the company disclosed several initiatives to improve the profitability of the Hawaii refinery. These included: reducing reliance on light sweet crude from Asia, achieving better value for finished products and improving reliability through controls modernization and installing a new electric substation. As an update to those initiatives, during the first quarter of 2008, the refinery reduced light sweet crude as a percent of total throughput to 19% from 30% a year ago by moving from light sweet grades to more advantaged heavy sweet and light sour crudes.
The controls modernization project is approximately 50% complete with one of the two phases now successfully commissioned and the electrical substation project was completed in March.
"After our acquisition of the Los Angeles refinery in May of last year, the Company announced that it was shifting the focus of its value creation strategy from an external acquisition driven business model to one that pursues internal yield and cost benefits. This shift was timely as the industry has recently experienced less robust margins. We've already developed and initiated changes that are expected to improve profitability in Hawaii and Los Angeles and have accelerated our review of costs and capital commitments across the system in response to the market environment. These programs are designed to reduce short term debt and fund capital expenditures solely from operating cash flow," said Bruce Smith, Tesoro's Chairman, President and CEO. These initiatives include:
Our goal is to realize approximately $750 million to $1 billion of cash through these initiatives, this year.
Beyond 2008, the Company is reviewing other initiatives to respond to the difficult market environment. These include:
Capital Program Update
We are revising our 2008 capital spending plan, including turnarounds, to $870 million from the previously announced at $1.1 billion. Most projects impacted by this reduction have been delayed or adjusted in scope rather than cancelled. The company is currently assessing the capital spend in 2009-2012. The company's capital spending for the first quarter of 2008 was $209 million which includes about $34 million for turnaround expenditures.
The company has completed the tie-in of the new delayed coker at our Golden Eagle refinery which was commissioned in late April and is successfully progressing towards full rates. We currently expect the total cost of this project to be $610 million.
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 June 16th, 2008 to shareholders of record as of June 2nd, 2008.
Public Invited to Listen to Analyst Conference Call via Internet
At 7:30 a.m., CDT, Wednesday, May 7th, 2008 Tesoro will broadcast, live, its conference call with analysts regarding first 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."
voice: (210) 626-4697
19100 Ridgewood Parkway
San Antonio, TX 78259