Tesoro Corporation (NYSE:TSO) today reported third quarter 2009
net earnings of $33 million, or $0.24 per diluted share compared to
net earnings of $259 million, or $1.86 per diluted share for the
third quarter of 2008. For the nine months ended September 30,
2009, net income was $39 million, or $0.28 per diluted share,
versus $181 million, or $1.30 per diluted share for the nine months
ended September 30, 2008.
Third quarter segment operating income was $137 million compared
to $510 million in the third quarter of 2008 as a result of lower
gross margins.
The Company’s realized gross margin of $9.59 per barrel (/bbl)
decreased by $7.10/bbl from a year ago, primarily as a result of
lower margins for distillates and narrowing differentials for heavy
crudes. West Coast diesel margins averaged less than $10/bbl, down
from over $24/bbl in the third quarter a year ago. Discounts for
heavy crudes weakened in the third quarter as spot prices for
Oriente crude traded at less than $7/bbl below Alaska North Slope
crude (ANS) versus more than $13/bbl a year ago. West Coast spot
gasoline prices, which traded $12/bbl above ANS in the third
quarter last year, increased to over $17/bbl during the quarter. In
light of the relative strength in gasoline margins, the Company
shifted 6% production into the gasoline pool versus a year ago.
Total system throughput for the third quarter was 564 thousand
barrels per day (mbpd), down 9% from the 2008 third quarter. The
Company continues to target throughput and inventory levels to meet
product demand in our markets.
The retail marketing business recorded $53 million in operating
income, versus $34 million a year ago. The 2008 results included a
write down and other expenses associated with the closing of
certain retail sites. The Company’s fuel gross margins in the
quarter averaged $0.28 cents per gallon (cpg), slightly down from
$0.30cpg a year ago. Operating costs in the retail segment were
lower by $7 million versus the third quarter last year due to lower
credit card fees associated with lower fuel prices, as well as
lower employee costs.
Refining direct manufacturing costs before depreciation and
amortization were $248 million in the third quarter versus $238
million in the second quarter 2009. The difference is primarily
attributable to higher repair and maintenance costs and increased
purchased energy usage.
“We were pleased to report a quarterly profit in this difficult
economic environment,” said Bruce Smith, Chairman, President and
CEO. “Although economic concerns persist in light of high
unemployment rates and weak industrial activity, the West Coast
region has remained in better balance to current demand as gasoline
and diesel inventories remain near their 5-year average. We
continue to view the West Coast as an attractive market in which to
do business, especially with the increasing stability in gasoline
demand we are experiencing through our retail channels.”
Capital Program Update
For the third quarter 2009, capital expenditures were $109
million, including turnaround spending. We expect to spend less
than our announced capital budget of $600 million for the full year
which includes $40 million for income improvement projects.
The Company’s initial 2010 capital budget estimate is $675
million, including approximately $50 million for income improvement
projects.
“When we rolled out our 2009 business plan at the end of last
year, we said that we intended to improve our cash position and
cost structure. We are pleased with the progress we have made on
expenses and our cash position has improved. We also stated that it
was essential that we see improvement in the marketplace prior to
allocating discretionary capital to our asset base. With cost
improvements and a good cash balance, we now have an opportunity to
begin modest funding of a portion of this program,” said Smith.
“These organic growth projects have small capital requirements and
average one to two year simple paybacks. We believe this is the
appropriate time to selectively fund projects that will create
value for the shareholders.”
Quarterly Dividend Update
Tesoro announced today that its Board of Directors has revised
the quarterly cash dividend to $0.05 per share. The dividend is
payable December 15th, 2009 to shareholders of record as of
December 1st, 2009.
“While we ended the third quarter with adequate cash to fund our
expected 2010 capital budget, the 40% reduction in West Coast
margins from September to October has proven that even in times of
stability, margins can be volatile. The reduction in our dividend
puts us more in line with our historical yield, while allowing this
capital to be re-deployed in support of our 2010 business plan, if
necessary,“ said Smith.
Analyst and Investor Presentation
The Company will be holding an Analyst and Investor Presentation
in New York City tomorrow, November 10, 2009 at 4:30 p.m. ET.
Analysts and investors are invited to the Down Town Association in
Lower Manhattan to attend the presentation, which will include an
update on the 2009 improvement initiatives, the 2010 business plan
and capital program. The presentation will be followed by a
question and answer session and a cocktail reception with members
of senior management. Because space is limited, reservations will
be required to attend and accepted on a first-come, first-serve
basis. Interested parties should contact Brad McMurray in the
Investor Relations department via email at
bradford.c.mcmurray@tsocorp.com or phone by calling
210-626-4676.
Public Invited to Listen to Analyst Conference Call
At 1:30 p.m. CT this afternoon, Tesoro will broadcast, live, its
conference call with analysts regarding second quarter 2009 results
and other business matters. Interested parties may listen to the
live conference call over the Internet by logging on to
http://www.tsocorp.com, or via phone by dialing (877) 485-3104
(international dial-in: (201) 689-8579), event ID 00334395. A
telephone replay of the call will be available for one week, and
may be accessed via phone by dialing (877) 660-6853 (international
replay: (201) 612-7415 and entering passcode 334395.
Tesoro Corporation, a Fortune 100 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 665,000 barrels
per day. Tesoro's retail-marketing system includes over 860 branded
retail stations, of which over 380 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 our capital spending and our margin capture. 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."
TESORO CORPORATION STATEMENTS OF CONSOLIDATED
OPERATIONS (Unaudited) (In millions except per share
amounts)
Three Months Ended Nine Months Ended September
30, September 30, 2009 2008
2009 2008
Revenues (a)
$
4,742 $ 8,682
$ 12,203 $ 24,175
Costs and
Expenses: Costs of sales and operating expenses (a) (b)
4,492 8,049
11,536 23,351 Selling, general and
administrative expenses
55 68
162 178 Depreciation
and amortization
102 99
315 288 Loss on asset
disposals and impairments
4 14
25
37
Operating Income 89 452
165
321 Interest and Financing Costs
(35 ) (30 )
(94 ) (83 ) Interest Income
- 2
3 5
Foreign Currency Exchange Loss
(3 ) -
(13
) (8 ) Other Income (c)
- 1
-
50
Earnings Before Income Taxes
51 425
61 285 Income Tax Provision
18
166
22 104
Net Earnings $
33 $ 259
$ 39 $ 181
Net Earnings Per Share: Basic
$ 0.24 $
1.89
$ 0.28 $ 1.33 Diluted
$ 0.24 $
1.86
$ 0.28 $ 1.30
Weighted Average Common
Shares: Basic
138.2 137.1
138.0 136.6 Diluted
139.7 139.4
139.6 139.3 (a) We have
reclassified our gains and losses associated with our derivative
instruments for the 2008 periods from “Revenues” to “Costs of sales
and operating expenses” to conform to the 2009 presentation. The
reclassifications totaled a $6 million loss and a $16 million gain
during the three months ended September 30, 2009 and 2008,
respectively, and losses of $61 million and $192 million during the
nine months ended September 30, 2009 and 2008, respectively. (b) At
both September 30, 2009 and 2008, reductions in petroleum
inventories resulted in decreases of last-in-first-out ("LIFO")
layers acquired at lower per-barrel costs. These inventory
reductions resulted in decreases to costs of sales of $12 million
during the three and nine months ended September 30, 2009 and $68
million and $146 million during the three months and nine months
ended September 30, 2008, respectively. (c) Other income for the
three and nine months ended September 30, 2008 represents refunds
received from the Trans Alaska Pipeline System in connection with
rulings by the Regulatory Commission of Alaska concerning our
protest of intrastate pipeline tariffs set between 1997 and 2003.
TESORO CORPORATION SELECTED OPERATING SEGMENT
DATA (Unaudited) (In millions)
Three Months Ended
Nine Months Ended September 30, September 30,
2009 2008
2009 2008
Operating Income (Loss)
Refining
$
84 $ 476
$ 268 $ 474 Retail
53
34
42 (5 ) Total Segment Operating Income
137 510
310 469 Corporate and Unallocated Costs
(48 )
(58 )
(145 ) (148 ) Operating Income
89 452
165 321 Interest and Financing Costs
(35 ) (30
)
(94 ) (83 ) Interest Income
- 2
3 5
Foreign Currency Exchange Loss
(3 ) -
(13
) (8 ) Other Income (c)
- 1
-
50
Earnings Before Income Taxes
$
51 $ 425
$ 61 $ 285
Depreciation and Amortization
Refining
$
86 $ 83
$ 263 $ 239 Retail
10 10
29 32 Corporate
6 6
23 17
Depreciation and Amortization
$
102 $ 99
$ 315 $ 288
Capital Expenditures
Refining
$
91 $ 119
$ 250 $ 407 Retail
1 4
10 10 Corporate
4 7
31 24
Capital Expenditures
$
96 $ 130
$ 291 $ 441
BALANCE SHEET DATA
(Unaudited) (Dollars in millions) September
30, December 31,
2009 2008
Cash and Cash
Equivalents
$
534 $ 20
Total Assets
$
8,244 $ 7,433
Total Debt
$
1,839 $ 1,611
Total Stockholders'
Equity
$
3,238 $ 3,218
Total Debt to Capitalization Ratio
36 % 33 %
TESORO CORPORATION
OPERATING DATA (Unaudited)
Three Months Ended
Nine Months Ended September 30, September 30,
2009 2008
2009 2008
REFINING SEGMENT Total
Refining Segment Throughput (thousand barrels per day) Heavy
crude (d)
162 221
176 194 Light crude
361 364
342 380 Other feedstocks
41 37
37 35 Total
Throughput
564 622
555 609 Yield (thousand
barrels per day) Gasoline and gasoline blendstocks
289 283
278 282 Jet fuel
79 82
70 80 Diesel fuel
113 158
115 144 Heavy oils, residual products,
internally produced fuel and other
115 132
124 133
Total Yield
596 655
587 639 Gross
refining margin ($/throughput bbl) (e)
$ 9.59 $ 16.69
$ 10.04 $ 11.21 Manufacturing cost before
depreciation and amortization ($/throughput bbl) (e)
$
4.79 $ 5.24
$ 4.90 $ 5.29 Segment
Operating Income ($ millions) Gross refining margin (f)
$
498 $ 955
$ 1,521 $ 1,869 Expenses
Manufacturing costs
248 300
743 883 Other operating
expenses
69 88
205 234 Selling, general and
administrative
7 8
19 29 Depreciation and
amortization (g)
86 83
263 239 Loss on asset
disposals and impairments (h)
4 -
23 10 Segment
Operating Income
$ 84 $ 476
$ 268 $ 474
Refined Product Sales (thousand barrels per day) (i)
Gasoline and gasoline blendstocks
309 327
311 330 Jet
fuel
92 94
83 95 Diesel fuel
129 164
123 146 Heavy oils, residual products and other
81 97
85 98 Total Refined Product Sales
611 682
602
669 Refined Product Sales Margin ($/barrel) (i) Average
sales price
$ 83.71 $ 131.21
$ 70.17 $
124.68 Average costs of sales
76.47 117.83
61.72
114.43 Refined Product Sales Margin
$ 7.24 $ 13.38
$ 8.45 $ 10.25 (d) We define heavy
crude oil as crude oil with an American Petroleum Institute gravity
of 24 degrees or less. (e)
Management uses gross refining
margin per barrel to evaluate performance and compare profitability
to other companies in the industry. Gross refining margin per
barrel is calculated by dividing gross refining margin by total
refining throughput and may not be calculated similarly by other
companies. Gross refining margin is calculated as revenues less
costs of feedstocks, purchased refined products, transportation and
distribution. Management uses manufacturing costs per barrel to
evaluate the efficiency of refinery operations. Manufacturing costs
per barrel is calculated by dividing manufacturing costs by total
refining throughput and may not be comparable to similarly titled
measures used by other companies. Investors and analysts use these
financial measures to help analyze and compare companies in the
industry on the basis of operating performance. These financial
measures should not be considered as alternatives to segment
operating income, revenues, costs of sales and operating expenses
or any other measure of financial performance presented in
accordance with accounting principles generally accepted in the
United States of America.
(f) Consolidated gross refining margin totals gross refining margin
for each of our regions adjusted for other costs not directly
attributable to a specific region. Gross refining margin includes
the effect of intersegment sales to the retail segment at prices
which approximate market. Gross refining margin approximates total
refining throughput times gross refining margin per barrel. (g)
Includes manufacturing depreciation and amortization per throughput
barrel of approximately $1.57 and $1.39 for the three months ended
September 30, 2009 and 2008, respectively, and $1.63 and $1.35 for
the nine months ended September 30, 2009 and 2008, respectively.
(h) Includes a termination charge of $12 million during the nine
months ended September 30, 2009, related to cancelling the purchase
of equipment associated with a capital project at our Los Angeles
refinery. (i) Sources of total refined product sales included
refined products manufactured at the refineries and refined
products purchased from third parties. Total refined product sales
margin includes margins on sales of manufactured and purchased
refined products and the effects of inventory changes.
TESORO CORPORATION OPERATING DATA (Unaudited)
Three Months Ended Nine Months Ended September
30, September 30, 2009 2008
2009 2008
Refining By Region California (Golden Eagle and Los
Angeles) Throughput (thousand barrels per day) (j) Heavy crude
(d)
147 188
161 163 Light crude
63 66
61 77 Other feedstocks
25 19
23 21 Total
Throughput
235 273
245 261 Yield (thousand
barrels per day) Gasoline and gasoline blendstocks
140 135
138 136 Jet fuel
17 19
17 19 Diesel fuel
47 83
53 70 Heavy oils, residual products, internally
produced fuel and other
53 59
59 55 Total Yield
257 296
267 280 Gross refining margin
$
250 $ 458
$ 771 $ 1,016 Gross refining margin
($/throughput bbl) (e)
$ 11.54 $ 18.22
$
11.54 $ 14.22 Manufacturing cost before depreciation and
amortization ($/throughput bbl) (e)
$ 7.02 $ 7.47
$ 6.72 $ 7.51
Pacific Northwest (Alaska
& Washington) Throughput (thousand barrels per day) (j)
Heavy crude (d)
- 1
- 9 Light crude
145 148
127 148 Other feedstocks
10 13
9 9 Total
Throughput
155 162
136 166 Yield (thousand
barrels per day) Gasoline and gasoline blendstocks
69 67
61 66 Jet fuel
33 35
26 32 Diesel fuel
26 32
23 32 Heavy oils, residual products, internally
produced fuel and other
32 34
30 41 Total Yield
160 168
140 171 Gross refining margin
$
129 $ 205
$ 335 $ 372 Gross refining margin
($/throughput bbl) (e)
$ 9.08 $ 13.76
$
9.04 $ 8.19 Manufacturing cost before depreciation and
amortization ($/throughput bbl) (e)
$ 3.04 $ 3.79
$ 3.74 $ 3.94
Mid-Pacific
(Hawaii) Throughput (thousand barrels per day) Heavy crude (d)
15 32
15 22 Light crude
51 40
53 48
Total Throughput
66 72
68 70 Yield (thousand
barrels per day) Gasoline and gasoline blendstocks
16 16
17 16 Jet fuel
19 18
18 19 Diesel fuel
12 11
11 11 Heavy oils, residual products, internally
produced fuel and other
20 28
24 26 Total Yield
67 73
70 72 Gross refining margin
$
7 $ 80
$ 78 $ 30 Gross refining margin
($/throughput bbl) (e)
$ 1.05 $ 12.15
$
4.17 $ 1.55 Manufacturing cost before depreciation and
amortization ($/throughput bbl) (e)
$ 3.26 $ 3.45
$ 3.07 $ 3.23 (j)
We experienced reduced throughput
due to turnarounds at the Alaska and Golden Eagle refineries during
the 2009 second quarter, scheduled maintenance at the Washington
refinery during the 2009 first quarter, and scheduled turnarounds
at the Golden Eagle refinery during the 2008 first and second
quarters and at the Washington refinery during the 2008 first
quarter.
TESORO CORPORATION OPERATING
DATA (Unaudited)
Three Months Ended Nine Months Ended September
30, September 30, 2009 2008
2009 2008
Mid-Continent (North Dakota & Utah) Throughput (thousand
barrels per day) Light crude
102 110
101 107 Other
feedstocks
6 5
5 5 Total Throughput
108 115
106 112 Yield (thousand barrels per day) Gasoline and
gasoline blendstocks
64 65
62 64 Jet fuel
10
10
9 10 Diesel fuel
28 32
28 31 Heavy oils,
residual products, internally produced fuel and other
10 11
11 11 Total Yield
112 118
110 116 Gross
refining margin
$ 115 $ 213
$ 337 $ 448
Gross refining margin ($/throughput bbl) (e)
$ 11.50
$ 20.10
$ 11.64 $ 14.61 Manufacturing cost before
depreciation and amortization ($/throughput bbl) (e)
$
3.37 $ 3.12
$ 3.39 $ 3.42
TESORO CORPORATION
OPERATING DATA (Unaudited)
Three Months Ended
Nine Months Ended September 30, September 30,
2009 2008
2009 2008
RETAIL SEGMENT Number of Stations (end of period)
Company-operated
387 391
387 391 Branded
jobber/dealer
479 492
479 492
Total Stations
866 883
866
883 Average Stations (during period)
Company-operated
388 414
388 432 Branded
jobber/dealer
483 495
487 488
Total Average Retail Stations
871 909
875 920 Fuel Sales (millions of
gallons) Company-operated
262 258
775 815 Branded
jobber/dealer
83 76
229 211
Total Fuel Sales
345 334
1,004
1,026 Fuel Margin ($/gallon) (k) (l)
$
0.28 $ 0.30
$ 0.19 $ 0.18 Merchandise Sales ($
millions)
$ 57 $ 60
$ 159 $ 171
Merchandise Margin ($ millions)
$ 14 $ 16
$
39 $ 44 Merchandise Margin %
25 % 27 %
25 % 26 % Segment Operating Income (Loss) ($
millions) Gross Margins Fuel (l)
$ 98 $ 99
$
189 $ 181 Merchandise and other non-fuel margin
21
22
58 60 Total Gross Margins
119 121
247 241 Expenses Operating expenses
51
56
153 170 Selling, general and administrative
5 7
21 19 Depreciation and amortization
10 10
29
32 Loss on asset disposals and impairments (m)
- 14
2 25 Segment Operating Income (Loss)
$ 53 $ 34
$ 42 $
(5 )
(k)
Management uses fuel margin per gallon to compare
profitability to other companies in the industry. Fuel margin per
gallon is calculated by dividing fuel gross margin by fuel sales
volumes and may not be calculated similarly by other companies.
Investors and analysts use fuel margin per gallon to help analyze
and compare companies in the industry on the basis of operating
performance. This financial measure should not be considered as an
alternative to segment operating income and revenues or any other
measure of financial performance presented in accordance with U.S.
GAAP. (l) Includes the effect of intersegment purchases from the
refining segment at prices which approximate market. (m) Includes
impairment charges related to a potential sale of 20 retail
stations during the 2008 first quarter and the closure of 42
Mirastar stations during the 2008 third quarter.
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