Aloha, Tesoro

San Antonio refiner-marketer selling refinery, 32 stations, other assets in Hawaii

SAN ANTONIO -- On the heels of an update indicating that the company expects to report a fourth-quarter net loss, Tesoro Corp. said late yesterday that as the result of a strategic analysis, it plans to sell its Hawaii operations, including the 94,000-barrels-per-day Kapolei refinery, operations at 32 retail gas stations and all associated logistical assets.

As reported in a Morgan Keegan/CSP Daily News Flash on Tuesday, Tesoro Hawaii said that it anticipates completing the sale no sooner than the second half of 2012, subject to regulatory and other approvals.

"Following a comprehensive analysis, we've determined that our business in Hawaii does not align with our strategic focus on the Mid-Continent and West Coast, and can provide greater value for a company that will invest in the business and employees," said Greg Goff, president and CEO of Tesoro. "While the Hawaii business is no longer in line with our vision for Tesoro's future, there is no question that it offers value for the right investor."

Tesoro Hawaii distributes refined products statewide. On Oahu, pipelines from the Kapolei refinery feed terminals at Honolulu International Airport, Honolulu Harbor and military installations. Pipelines also deliver products to Kalaeloa Barbers Point Harbor, where they are transferred to ships and barges that supply the Neighbor Islands. Gasoline and diesel are sold through a network of Tesoro-branded retail stations on Oahu, Maui and the Big Island, and through distributors.

The Kapolei refinery enjoys a favorable geographic position, excellent logistical infrastructure and an advantaged configuration that make it an attractive business for interested buyers, said the company. The refinery yield is distillate-focused and is complementary to the on-island demand for utility, jet and military fuels. The facility has the necessary logistics to support product movements to and from the U.S. West Coast or Pacific Rim markets, and is well positioned for participation in existing State of Hawaii and U.S. Department of Defense renewable fuels projects.

This is a fully integrated business that includes a hydrocracking refinery; network of retail stations; deep-draft single-point mooring facility for crude and product movements; proprietary pipelines with connections to crucial business hubs such as Honolulu International Airport, the military fuel depot and Barbers Point interisland barge harbor; terminal access; and barge operations to supply the major outlying islands

Tesoro Hawaii indicated its operations are focused on continuing to meet all its business commitments during the marketing and sales process.

On January 5, Tesoro announced that it expects to report a net loss per diluted share in the range of 55 cents to 80 cents for the fourth quarter of 2011. Contributing to the net loss was an extremely weak margin environment in California and the collapse of the West Texas Intermediate (WTI) to Brent crude oil spread, it said.

The unusually weak market conditions experienced in California during the fourth quarter recently improved, the company said.

Refinery throughput rates, manufacturing costs, depreciation, corporate and interest expense for the fourth quarter are expected to be in line with previously provided guidance, said Tesoro, except for an estimated after-tax expense of approximately nine cents per diluted share related to noncash stock-based compensation primarily associated with stock appreciation rights.

Despite the anticipated loss in the fourth quarter, Tesoro expects to report earnings per diluted share in the range of $3.85 to $4.10 for the full year 2011. The company's strong performance was driven primarily by higher refinery utilization rates, gross margin improvements and execution of its business improvement plans, it said.

San Antonio-based Tesoro, is an independent refiner and marketer of petroleum products. Through its subsidiaries, it 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 nearly 1,200 branded retail stations, of which more than 375 are company operated under the Tesoro, Shell and USA Gasoline brands.