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Press release from Business Wire

Tesoro Corporation Reports Third Quarter Results; Announces Restart of Anacortes Refinery

Thursday, November 04, 2010

Tesoro Corporation Reports Third Quarter Results; Announces Restart of Anacortes Refinery20:37 EDT Thursday, November 04, 2010 SAN ANTONIO (Business Wire) -- Tesoro Corporation (NYSE:TSO) today reported third quarter 2010 net earnings of $56 million, or $0.39 per diluted share compared to net earnings of $33 million, or $0.24 per diluted share for the third quarter of 2009. The Company earned $73 million or $0.51 per diluted share for the period before one-time after-tax expenses of $17 million primarily associated with the Anacortes refinery outage. Third quarter segment operating income was $201 million excluding the one-time items, compared to $137 million in the third quarter a year ago. The increase in operating income was driven by stronger distillate margins, improved feedstock cost and the Company's improvement initiatives. These benefits were partially offset by decreased gasoline margins and reduced throughput. The reduction in throughput was primarily a result of the continued shut-down of the Anacortes refinery and the planned turnaround of our Hawaii refinery. For the third quarter, the Tesoro Index gained $1.42 per barrel (/bbl) or 17% from a year ago. West Coast benchmark diesel margins were up more than 50% over last year while gasoline margins were down 7%. The Company realized all of the index gains and more, capturing a gross margin of $13.28/bbl, which was up $3.69/bbl or 38% from a year ago. Contributing to the Company's improved performance relative to the index was an increase in conversion unit utilization which resulted in higher clean product yields. In addition, the Company produced more diesel, capturing the stronger distillate margins and ran more Canadian and South American heavy crudes as the discounts for these crudes widened. “We are pleased with our third quarter results, even with Anacortes down for the period,” said Greg Goff, President and CEO of Tesoro. “During the quarter we saw improvement in distillate margins in our markets similar to what's been seen across the country. We attribute this to strong distillate exports, improvements in the U.S. manufacturing sector and increased port activity nationwide. Unfortunately, these increases are not being seen in gasoline margins. While gasoline demand has stabilized, high unemployment in California continues to keep gasoline demand weak.” Capital Spending and Liquidity Capital spending, including turnarounds, for the third quarter 2010 was $110 million. The Company reaffirms prior full year 2010 guidance for capital spending, including turnarounds, to be in the range of $475 to $500 million. The Company ended the third quarter with $339 million in cash on the balance sheet, a gain of nearly $150 million for the quarter, and remained undrawn with $827 million of availability on its revolving credit facility. “While we have seen improvements in the market during the third quarter, we continue to plan for a challenging margin environment and are committed to our improvement initiatives. Our third quarter results benefited from the changes to corporate overhead and benefits costs we announced in July and we expect those improvements to continue. We're looking forward to our analyst day event later in the fourth quarter where we'll discuss our 2011 plans for further strengthening Tesoro,” said Goff. Washington Refinery Tesoro also announced that the process to restart the Anacortes, Washington refinery began on October 17th. "Today, most of the refinery is operating and we expect to be back to normal operations soon. In addition to completing repairs to the damaged units, extensive future inspections and maintenance work was accelerated to take advantage of the down time," said Goff. The Company is also working with insurance adjusters to process claims related to the incident. Tesoro maintains comprehensive property, business interruption, workers' compensation and general liability insurance. On October 22, 2010, Tesoro filed a Notice of Appeal to all citations and penalties with the Washington State Department of Labor and Industries. The Company continues to work closely with investigators regarding this incident and continues to drive safety improvements throughout the Company. Analyst and Investor Presentation The Company will be holding an Analyst and Investor Presentation at the New York Stock Exchange on December 13, 2010 at 2:30 p.m. ET. Because space is limited, reservations will be required to attend and accepted on a first-come, first-serve basis. Interested parties should contact Ann McAlister in the Investor Relations department via email at ann.s.mcalister@tsocorp.com or phone by calling 210-626-6861. Reservations will be accepted until close of business on Wednesday, December 8, 2010. Public Invited to Listen to Analyst Conference Call At 7:30 a.m. CDT tomorrow morning, Tesoro will broadcast, live, its conference call with analysts regarding third quarter 2010 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 00358345. 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), then entering passcode 358345 and access code 356. 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 665,000 barrels per day. Tesoro's retail-marketing system includes over 875 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, expected corporate expense savings, our expectations about our capital spending, and the completion of repairs and resumption of operations at our Anacortes refinery.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 CORPORATIONSTATEMENTS OF CONSOLIDATED OPERATIONS(Unaudited)(In millions except per share amounts)             Three Months EndedNine Months EndedSeptember 30,September 30,2010 2009 2010 2009 Revenues$5,320 $ 4,742 $15,070 $ 12,203 Costs and Expenses: Costs of sales (a) 4,647 4,125 13,386 10,435 Operating expenses 375 367 1,096 1,101 Selling, general and administrative expenses 56 55 165 162 Depreciation and amortization expense 106 102 314 315 Loss on asset disposals and impairments   7     4     39     25     Operating Income (b)129 89 70 165 Interest and Financing Costs (40) (35 ) (114) (94 ) Interest Income and Other 4 - 4 3 Foreign Currency Exchange Income (Loss)   1     (3 )   2     (13 )   Earnings (Loss) Before Income Taxes94 51 (38) 61 Income Tax Provision (Benefit)   38     18     (6)   22   Net Earnings (Loss)$56   $ 33   $(32) $ 39   Net Earnings (Loss) Per Share: Basic $0.40 $ 0.24 $(0.23) $ 0.28 Diluted (c) $0.39 $ 0.24 $(0.23) $ 0.28 Weighted Average Common Shares: Basic 140.9 138.2 140.3 138.0 Diluted (c) 142.0 139.7 140.3 139.6         (a)At September 30, 2009, 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 a decrease to costs of sales of $12 million during the three and nine months ended September 30, 2009.(b)Includes a $43 million net gain for the nine months ended September 30, 2010 primarily from the elimination of postretirement life insurance benefits for current and future retirees.(c)The assumed conversion of common stock equivalents produced anti-dilutive results for the nine months ended September 30, 2010 and was not included in the dilutive calculation.   TESORO CORPORATIONSELECTED OPERATING SEGMENT DATA(Unaudited)(In millions)               Three Months EndedNine Months EndedSeptember 30,September 30,2010 2009 2010 2009 Operating Income Refining $146 $ 84 $127 $ 268 Retail   32     53     86     42   Total Segment Operating Income 178 137 213 310 Corporate and unallocated costs   (49)   (48 )   (143)   (145 ) Operating Income 129 89 70 165 Interest and financing costs (40) (35 ) (114) (94 ) Interest income and other 4 - 4 3 Foreign currency exchange gain (loss)   1     (3 )   2     (13 ) Earnings (Loss) Before Income Taxes $94   $ 51   $(38) $ 61     Depreciation and Amortization Expense Refining $92 $ 86 $270 $ 263 Retail 10 10 30 29 Corporate   4     6     14     23   Depreciation and Amortization Expense $106   $ 102   $314   $ 315     Capital Expenditures Refining $67 $ 91 $207 $ 250 Retail 8 1 12 10 Corporate   -     4     -     31   Capital Expenditures $75   $ 96   $219   $ 291     BALANCE SHEET DATA(Unaudited)(Dollars in millions)     September 30, December 31, 2010 2009 Cash and Cash Equivalents$339 $ 413 Total Assets$8,383 $ 8,070 Total Debt$1,847 $ 1,841 Total Stockholders' Equity$3,207 $ 3,087 Total Debt to Capitalization Ratio37% 37 %   TESORO CORPORATIONOPERATING DATA(Unaudited)                   Three Months EndedNine Months EndedSeptember 30,September 30,2010 2009 2010 2009 REFINING SEGMENTTotal Refining Segment Throughput (thousand barrels per day) Heavy crude (d) 191 162 184 176 Light crude 251 361 259 342 Other feedstocks   30   41   29   37 Total Throughput   472   564   472   555   Yield (thousand barrels per day) Gasoline and gasoline blendstocks 238 289 231 278 Jet fuel 63 79 66 70 Diesel fuel 104 113 100 115 Heavy oils, residual products, internally produced fuel and other   95   115   103   124 Total Yield   500   596   500   587     Gross refining margin ($/throughput bbl) (e) $13.28 $ 9.59 $10.87 $ 10.04 Manufacturing cost before depreciation and amortization expense ($/throughput bbl) (e) $6.14 $ 4.79 $5.94 $ 4.90   Segment Operating Income ($ millions) Gross refining margin (f) $577 $ 498 $1,402 $ 1,521 Expenses Manufacturing costs 266 248 766 743 Other operating expenses 60 69 182 205 Selling, general and administrative expenses 6 7 22 19 Depreciation and amortization expense (g) 92 86 270 263 Loss on asset disposals and impairments (h)   7   4   35   23 Segment Operating Income (i) $146 $ 84 $127 $ 268   Refined Product Sales (thousand barrels per day) (j) Gasoline and gasoline blendstocks 294 309 285 311 Jet fuel 92 92 93 83 Diesel fuel 131 129 114 123 Heavy oils, residual products and other   72   81   75   85 Total Refined Product Sales   589   611   567   602   Refined Product Sales Margin ($/barrel) (j) Average sales price $88.81 $ 83.71 $88.95 $ 70.17 Average costs of sales   78.95   76.47   81.20   61.72 Refined Product Sales Margin $9.86 $ 7.24 $7.75 $ 8.45           (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. There are a variety of ways to calculate gross refining margin per barrel; different companies may calculate it in different ways. We calculate gross refining margin per barrel by dividing gross refining margin (revenue less costs of feedstocks, purchased refined products, transportation and distribution) by total refining throughput. Management uses manufacturing costs per barrel to evaluate the efficiency of refining operations. There are a variety of ways to calculate manufacturing costs per barrel; different companies may calculate it in different ways. We calculate manufacturing costs per barrel by dividing manufacturing costs by total refining throughput. 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 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 combines gross refining margin for each of our regions adjusted for other costs not directly attributable to a specific region. Other costs resulted in a decrease of $3 million for the three months ended September 30, 2009. 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 expense per throughput barrel of approximately $2.01 and $1.57 for the three months ended September 30, 2010 and 2009, respectively, and $1.98 and $1.63 for the nine months ended September 30, 2010 and 2009, respectively.(h)Includes impairment charges related to our Los Angeles refinery of $20 million and $12 million for the nine months ended September 30, 2010 and 2009, respectively. The loss on asset disposals and impairments is included in refining segment operating income but excluded from the regional operating costs per barrel.(i)Includes a $36 million net gain for the nine months ended September 30, 2010 primarily from the elimination of postretirement life insurance benefits for current and future retirees.(j)Sources of total refined product sales include refined products manufactured at our refineries and refined products purchased from third parties. The total refined product sales margins include margins on sales of manufactured and purchased refined products.         TESORO CORPORATIONOPERATING DATA(Unaudited)           Three Months EndedNine Months EndedSeptember 30,September 30,2010 2009 2010 2009 Refining By RegionCalifornia (Golden Eagle and Los Angeles) Throughput (thousand barrels per day) (k) Heavy crude (d) 175 147 164 161 Light crude 44 63 40 61 Other feedstocks   22   25   19   23 Total Throughput   241   235   223   245   Yield (thousand barrels per day) Gasoline and gasoline blendstocks 141 140 127 138 Jet fuel 20 17 19 17 Diesel fuel 56 47 53 53 Heavy oils, residual products, internally produced fuel and other   47   53   46   59 Total Yield   264   257   245   267   Gross refining margin $305 $ 250 $730 $ 771 Gross refining margin ($/throughput bbl) (e) $13.74 $ 11.54 $11.97 $ 11.54 Manufacturing cost before depreciation and amortization expense ($/throughput bbl) (e) $7.02 $ 7.02 $7.53 $ 6.72   Pacific Northwest (Alaska & Washington) Throughput (thousand barrels per day) (k) Heavy crude (d) - - 1 - Light crude 61 145 83 127 Other feedstocks   3   10   6   9 Total Throughput   64   155   90   136   Yield (thousand barrels per day) Gasoline and gasoline blendstocks 18 69 32 61 Jet fuel 20 33 24 26 Diesel fuel 8 26 11 23 Heavy oils, residual products, internally produced fuel and other   18   32   25   30 Total Yield   64   160   92   140   Gross refining margin $68 $ 129 $230 $ 335 Gross refining margin ($/throughput bbl) (e) $11.68 $ 9.08 $9.40 $ 9.04 Manufacturing cost before depreciation and amortization expense ($/throughput bbl) (e) $10.23 $ 3.04 $6.27 $ 3.74     Mid-Pacific (Hawaii) Throughput (thousand barrels per day) (k) Heavy crude (d) 16 15 19 15 Light crude   37   51   43   53 Total Throughput   53   66   62   68   Yield (thousand barrels per day) Gasoline and gasoline blendstocks 13 16 15 17 Jet fuel 12 19 14 18 Diesel fuel 10 12 11 11 Heavy oils, residual products, internally produced fuel and other   19   20   23   24 Total Yield   54   67   63   70   Gross refining margin $25 $ 7 $58 $ 78 Gross refining margin ($/throughput bbl) (e) $5.00 $ 1.05 $3.39 $ 4.17 Manufacturing cost before depreciation and amortization expense ($/throughput bbl) (e) $3.93 $ 3.26 $3.16 $ 3.07             (k)We experienced reduced throughput due to scheduled turnarounds at our Hawaii refinery during the 2010 Quarter and North Dakota, Golden Eagle, and Utah refineries in the 2010 Period. We temporarily shut-down processing at the Washington refinery beginning in April 2010. We experienced reduced throughput due to scheduled turnarounds at our Alaska and Golden Eagle refineries and scheduled maintenance at our Washington refinery during the 2009 Period.   TESORO CORPORATIONOPERATING DATA(Unaudited)                 Three Months EndedNine Months EndedSeptember 30,September 30,2010 2009 2010 2009 Mid-Continent (North Dakota & Utah) Throughput (thousand barrels per day) (k) Light crude 109 102 93 101 Other feedstocks   5   6   4   5 Total Throughput   114   108   97   106   Yield (thousand barrels per day) Gasoline and gasoline blendstocks 66 64 57 62 Jet fuel 11 10 9 9 Diesel fuel 30 28 25 28 Heavy oils, residual products, internally produced fuel and other   11   10   9   11 Total Yield   118   112   100   110   Gross refining margin $179 $ 115 $384 $ 337 Gross refining margin ($/throughput bbl) (e) $17.16 $ 11.50 $14.52 $ 11.64 Manufacturing cost before depreciation and amortization expense ($/throughput bbl) (e) $3.04 $ 3.37 $3.78 $ 3.39   TESORO CORPORATIONOPERATING DATA(Unaudited)             Three Months EndedNine Months EndedSeptember 30,September 30,2010 2009 2010 2009 RETAIL SEGMENT Number of Stations (end of period) Company-operated 382 387 382 387 Branded jobber/dealer   497     479     497     479   Total Stations   879     866     879     866     Average Stations (during period) Company-operated 383 388 384 388 Branded jobber/dealer   497     483     499     487   Total Average Retail Stations   880     871     883     875     Fuel Sales (millions of gallons) Company-operated 271 262 789 775 Branded jobber/dealer   80     83     211     229     Total Fuel Sales   351     345     1,000     1,004     Fuel Margin ($/gallon) (l) (m) $0.22 $ 0.28 $0.22 $ 0.19 Merchandise Sales ($ millions) $54 $ 57 $152 $ 159 Merchandise Margin ($ millions) $14 $ 14 $40 $ 39 Merchandise Margin % 26% 25 % 26% 25 %   Segment Operating Income($ millions) Gross Margins Fuel (m) $76 $ 98 $223 $ 189 Merchandise and other non-fuel margin   20     21     59     58   Total Gross Margins 96 119 282 247 Expenses Operating expenses 49 51 148 153 Selling, general and administrative expenses 5 5 14 21 Depreciation and amortization expense 10 10 30 29 Loss on asset disposals and impairments   -     -     4     2   Segment Operating Income $32   $ 53   $86   $ 42         (l)Management uses fuel margin per gallon to compare profitability to other companies in the industry. There are a variety of ways to calculate fuel margin per gallon; different companies may calculate it in different ways. We calculate fuel margin per gallon by dividing fuel gross margin by fuel sales volumes. 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 an alternative to segment operating income and revenues or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States of America.(m)Includes the effect of intersegment purchases from the refining segment at prices which approximate market.         TESORO CORPORATIONRECONCILIATION TO AMOUNTS REPORTED UNDER US GAAP(Unaudited)(In millions)     Three Months EndedNine Months EndedSeptember 30,September 30,2010 2009 2010 2009   Net Earnings (Loss)$56 $ 33 $(32) $ 39 Add (Less) income tax provision (benefit) 38 18 (6) 22 Add interest and financing costs 40 35 114 94 Less interest income (2) - (2) (3 ) Add depreciation and amortization expense   106     102   314     315   Earnings before Interest, Income Taxes, Depreciationand Amortization Expense (EBITDA) (n)$238   $ 188 $388   $ 467     SEGMENT OPERATING INCOME ADJUSTED FOR SPECIAL ITEMS(Unaudited)(In millions)     Three Months EndedSeptember 30, 20102010Total Segment Operating Income$178 Special Items, before-tax: Costs incurred at the Washington Refinery   23Segment Operating Income Adjusted for Special Items$201   NET EARNINGS ADJUSTED FOR SPECIAL ITEMS(Unaudited)(In millions except per share amounts)       Three Months EndedSeptember 30,2010Net Earnings - U.S. GAAP$56 Special Items, After-tax: Costs incurred at the Washington Refinery (o) 15 Corporate headquarters' office space sublease charge (p)   2Net Earnings Adjusted for Special Items$73   Net Diluted Earnings Per Share - U.S. GAAP$0.39 Special Items Per Share, After-tax: Costs incurred at the Washington Refinery 0.11 Corporate headquarters' office space sublease charge   0.01Net Diluted Earnings Per Share Adjusted for Special Items$0.51 _________________ Note:The special items present information that the Company believes is useful to investors. The Company believes that special items are not indicative of its core operations.(n)EBITDA represents earnings before interest and financing costs, interest income, income taxes, and depreciation and amortization expense. We present EBITDA because we believe some investors and analysts use EBITDA to help analyze our cash flows including our ability to satisfy principal and interest obligations with respect to our indebtedness and to use cash for other purposes, including capital expenditures. EBITDA is also used by some investors and analysts to analyze and compare companies on the basis of operating performance and by management for internal analysis and as a component of the fixed charge coverage financial covenant in our credit agreement. EBITDA should not be considered as an alternative to net earnings, earnings before income taxes, cash flows from operating activities or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States of America. EBITDA may not be comparable to similarly titled measures used by other entities.(o)After-tax impact of $23 million in costs at the Washington refinery, of which $12 million is related to the April 2, 2010 incident and $11 million to maintenance work performed while the refinery was shut down.(p)Represents the after-tax impact of a $4 million one-time charge related to the sublease of office space at our Corporate headquarters. Tesoro CorporationInvestors:Louie Rubiola, 210-626-4355Director, Investor Relations,orMedia:Mike Marcy, 210-626-4697Manager of External Affairs