Tesoro to Push Up Refinery Capacity - Analyst Blog
December 07 2011 - 11:51AM
Zacks
Tesoro Corporation (TSO) announced plans to
expand crude oil throughput capacity by about 7% at the Salt Lake
City, Utah refinery. In this regard, the company will burn up
approximately $180 million.
With this move, Tesoro will be able to boost the throughput of
transportation-advantaged black wax and yellow wax crude oil to 21
million barrels per day (mbpd), reflecting an increase of over
100%. The project will also be involved in the conversion of unit
upgrades that will lead to a nearly 3% growth in clean product
yield at the refinery.
On the basis of initial estimates, the venture, expected to be
completed in two stages in 2013 and 2014, has a payback period of
less than two years.
Tesoro also inked a seven-year time-frame crude oil supply
agreement with Newfield Exploration Company (NFX).
Per the deal, the former will supply 18 mbpd of black wax and
yellow wax crude oil, commencing from 2013. However, the financial
terms were not disclosed.
This capital investment program highlights Tesoro’s efforts on
capitalizing high-return short payback projects that will enable
the company to reap higher and better profits. The collaboration
with Newfield will render Tesoro the opportunity to canalize the
growing supply of domestic crude oil as well as enjoy strong
economic benefits.
San Antonio, Texas-based Tesoro is an independent refiner and
marketer of refined petroleum products in the western U.S. The
company operates in two segments: Refining (accounted for 72% of
the company’s total 2010 operating income) and Retail (28%).
In recent times, Tesoro has pumped up its crude oil supply via
rail from the Bakken Shale play in North Dakota to its refinery in
Anacortes, Washington. This increased supply capacity will enable
the company to drive further drilling activities and production in
the Bakken Shale and strengthen its strong foothold in the energy
sector, through the enhancement of the refining and marketing
business.
During the last few quarters, Tesoro has consistently achieved
profitable growth that has boosted its stock valuation. In the near
term, the company stands to benefit from a healthy balance sheet
profile and a portfolio of seven refineries.
However, Tesoro remains exposed to risks from the dampened U.S.
economic growth and weak product demand. Its lack of geographic
diversification and excessive dependence on the West Coast market
will further limit positive earnings surprises. Hence, we maintain
a long-term Neutral rating on the stock.
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TESORO CORP (TSO): Free Stock Analysis Report
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