How Will Tesoro Dispose of Its Hawaii Stations?

Refinery conversion puts retail outlets' status in limbo, and company isn't talking

SAN ANTONIO -- The fate of Tesoro Corp.'s 31 gas stations in Hawaii is uncertain following the company's announcement last week that it will cease refining operations at its Kapolei refinery in April and begin the process of converting the refinery to an import, storage and distribution terminal.

Officials would not comment on who might purchase the stations. "Can't really comment on that," Tesoro Hawaii spokesperson Lance Tanaka told The Pacific Business Journal. "As of right now, no word [on that]."

A source told the newspaper that an Asian entity is hoping to purchase Tesoro's stations. Another strong possibility is Aloha Petroleum Ltd., which said last May that the convenience store market in Hawaii is underserved and is looking to significantly grow this area, said the report.

"We're in the final stages of the process to dispose of our business in Hawaii," Tesoro CEO, president and director Gregory J. Goff said at its Analyst & Investor Day Conference in mid-December. "We expect to make an announcement on Hawaii in January of what will happen there. And just to refresh everyone's memory about what we've talked about in Hawaii, one of the values that we create in Hawaii and a big part of our decision to divest of that business was its significant amount of working capital we tied up in the business, somewhere north of $300 million, that as we complete the process to divest of the Hawaiian business, we'll free up that working capital and that's really the value that's created there."

Tesoro Hawaii said that it will maintain the existing distribution system to support marketing operations and fulfill its supply commitments while continuing to offer the terminal, distribution and retail assets for sale. Upon conversion of the refinery to an import, storage and distribution terminal, Tesoro Hawaii believes third-party use of the terminal and associated logistics will facilitate ongoing supplies of refined products.

Tesoro expects to report one-time charges in fourth-quarter 2012 related to the conversion of the refinery to a terminal, including charges for asset impairment and asset retirement obligations. The company also expects to realize between $300 million and $350 million in cash by the end of 2013, driven by a reduction in working capital needs as a result of this conversion.

San Antonio-based Tesoro 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 675,000 barrels per day. Tesoro's retail-marketing system includes nearly 1,390 branded retail stations, of which more than 595 are company operated under the Tesoro, Shell and USA Gasoline brands.