SAN ANTONIO -- Tesoro Corp. has reported a net loss of $40 million, or 29 cents per share, for fourth-quarter 2007 compared to net income of $158 million, or $1.14 per share, for fourth-quarter 2006.
In comparison to last year, weak crack spreads, higher operating expenses and poor marketing margins negatively impacted earnings at the company's West Coast refineries. The Hawaii refinery posted an $86 million pre-tax operating loss for the quarter compared to a $19 million pre-tax operating profit for the same period a year ago. In Hawaii, finished product prices did not reflect the rapidly [image-nocss] rising cost and premiums paid for crude which accounted for most of the quarter to quarter difference. Additionally, an unplanned outage on the refinery's reformer unit during the period negatively impacted results by an estimated $30 million, including $10 million of higher repairs and maintenance expenses.
In total, quarterly refining operating earnings were $9 million compared to fourth-quarter earnings of $284 million a year ago. "The company has made significant improvements in crude purchasing and product sales at all of our refineries with the exception of Hawaii but lower benchmark margins in the Western United States overwhelmed these improvements and account for most of the quarter to quarter change. In Hawaii, the disappointing financial results are due to a combination of factors and the company has developed an action plan to address the myriad issues there. Improved reliability, changes to our crude slate to reduce the amount of Asian light sweet crude oil used which has been selling at lofty premiums and a greater focus on achieving better value for commercial products marketed in Hawaii are among the key initiatives we have undertaken," said Bruce Smith, chairman, president and CEO of Tesoro.
Benchmark margins versus last year were lower by 23% on the West Coast, 36% in the Pacific Northwest and 7% in the Group 3 (Midwest) region. "In the fourth quarter of 2006, we experienced record crack spreads on the West Coast. In contrast, during the 2007 fourth quarter, West Coast product inventories rose due to higher refinery utilization rates at a time of weakened demand in part due to both economic slowdown and inclement weather in California during the end of December. Three factors should have a positive impact on the outlook for spring margins—lower planned production runs combined with the impact of planned turnarounds, the seasonal reduction of gasoline inventories due to the transition into summer-grade gasoline and increased seasonal demand," added Smith.
For the full year of 2007, the company reported net earnings of $566 million, or $4.06 per diluted share, versus earnings for the full year of 2006 of $801 million, or $5.73 per share.
"In 2007, Tesoro had many notable successes and fulfilled several goals. We acquired and fully integrated the Los Angeles refinery and California retail assets and subsequently reduced debt to achieve a year-end debt-to-capitalization ratio of 35%. The addition of these assets permitted us to achieve $45 million in synergies for the year, mainly through shared crude cargo benefits, and we are confident that we will meet our total goal of $100 million in the first 12 months of ownership. In May we doubled the dividend. The Shell and USA Gasoline acquisitions nearly doubled our retail network. Finally, we managed the largest capital program in company history while achieving record safety performance."
Last May, Tesoro closed on the purchase of Shell's 100,000-barrels-per-day (bpd) Los Angeles refinery and 278 operating gas stations in Southern California for $1.76 billion. All 278 retail sites remain Shell branded and are supplied by Tesoro. Earlier that month, it completed the purchase of the USA gasoline brand and 138 operating gas stations from Thousand Oaks, Calif.-based USA Petroleum Corp. for $273 million. The units include 130 stations in California, six stations in the Pacific Northwest and two truckstops in New Mexico.
"In 2008, we look forward to completing several income producing projects, realizing additional synergies associated with the addition of Los Angeles and improving profitability in Hawaii," Smith concluded.
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 660,000 bpd. Tesoro's retail-marketing system includes more than 900 branded retail stations, of which more than 445 are company operated under the Tesoro, Shell, Mirastar and USA Gasoline brands.
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