PHILADELPHIA -- Sunoco Inc. reported net income of $329 million ($2.39 per share diluted) for third-quarter 2005 versus $104 million (69 cents per share diluted) for the 2004 third quarter. Excluding special items, income for the current quarter was $357 million ($2.60 per share diluted) compared to $128 million (85 cents per share diluted) for the 2004 third quarter.
For the first nine months of 2005, Sunoco reported net income of $687 million ($4.97 per share diluted) versus net income of $427 million ($2.81 per share diluted) for the first nine months [image-nocss] of 2004. Excluding special items, Sunoco's income was $715 million ($5.17 per share diluted) versus $451 million ($2.97 per share diluted) for the comparable 2004 period.
All per-share amounts reflect the two-for-one stock split effected on August 1.
Results for the company continued to be very strong and were clearly impacted by the effects of Hurricanes Katrina and Rita, said John G. Drosdick, Sunoco chairman and CEO. With product demand strong and industry production at near maximum levels before the disruptions, the loss of over 10% of U.S. refining capacity during September caused prices and margins to spike further, as both supply and demand responses were necessary to keep the system adequately supplied.
He added, On the supply side, inventory draws, increased imports and higher utilization rates and production yields from operating refineries were required. To that end, aided by some temporary regulatory waivers, Sunoco's refineries were able to achieve several production records, including crude throughput and gasoline production levels during the month of September to help supply our markets.
He continued, On the demand side, the rapid increase in retail prices combined with some temporary disruptions to the supply chain, led to lower September demand. While the ultimate impact of the hurricanes on the energy complex will be felt for some time, it is encouraging that the industry and the market have responded to date and crude oil and refined product prices have largely returned to pre-Katrina levels.
Refining & Supply earned $341 million in the current quarter versus $89 million in third-quarter 2004. The $252 million increase in earnings was due to higher realized margins and higher production volumes. The higher realized margins are largely as a result of the supply disruptions on the Gulf Coast due to Hurricanes Katrina and Rita and the increased use of discounted high-acid crude oils, which averaged approximately 72,000 barrels daily in third-quarter 2005. Partially offsetting these factors were higher expenses, including fuel and employee-related charges. Total crude unit throughput averaged 865,700 barrels daily (96% utilization) for the quarter, with total production available for sale approximating 83 million barrels.
Retail Marketing earned $6 million in third-quarter 2005 versus $22 million in third-quarter 2004. The decrease in results was due largely to lower retail margins for gasoline. Total volumes were up slightly versus the prior-year quarter.
Sunoco earned $687 million for the first nine months of 2005 versus $427 million in the first nine months of 2004. The increase was primarily due to higher margins in the Refining & Supply and Chemicals businesses. Also contributing to the improvement in earnings were higher production of refined products, increased use of high-acid discounted crude oils, an absence of the loss on early extinguishment of debt in connection with the debt restructuring in 2004, lower net financing expenses and the absence of the loss related to the sale of Sunoco's one-third interest in BEF. Partially offsetting these positive factors were the loss associated with a phenol supply contract dispute, lower margins in Retail Marketing, higher expenses, primarily fuel and employee-related charges and a higher effective income tax rate.
Looking forward, the challenges and opportunities for refiners are significant, as future product specification changes will be difficult and spare capacity is limited, Drosdick said. Our efforts and resources over the next several years will be directed toward increasing the capacity and productivity of our refining assets. To that end, we expect to invest approximately $1.8 billion in our refineries over the next three years, with a greater emphasis on growth projects which will increase total crude unit capacity by 100,000 barrels per day to 1 million [bpd], while improving our product yields and crude oil and other feedstock processing flexibility. The first phase of this capital program is already underway. A $300 million project to expand the capacity of one of the fluid catalytic cracking units at the Philadelphia refinery, and to significantly reconfigure the unit to upgrade approximately 25,000 [bpd] of residual fuel production into higher-value gasoline and distillate production is expected to be completed early in 2007. The timely completion of this capital program is subject to the prompt receipt of all necessary permits. This is the strategy we believe is right for our industry, our customers and our shareholders.
Separately, San Antonio-based Tesoro Corp. reported third-quarter 2005 net earnings of $226 million, or $3.20 per share, compared to net earnings of $65 million, or $0.93 per share, for third-quarter 2004. Results for the third quarter include an after-tax charge of $5.6 million, or 8 cents per share, for insurance premium surcharges primarily related to the impact of hurricanes Katrina and Rita.
For the first nine months of 2005, the company reported net earnings of $438 million, or $6.23 per share, compared to net earnings of $328 million, or $4.79 per share, for the first nine months of 2004.
Results for the first nine months of 2005 include after-tax charges of $8 million, or 11 cents per share, for the prepayment of debt as well as expenses related to the termination and retirement of certain executive officers. This compares to after-tax charges of $14 million, or 20 cents per share, for debt prepayment and financing costs incurred in the first nine months of 2004. Excluding special items, net earnings for the first nine months of 2005 were $446 million, or $6.34 per share, compared to net earnings excluding special items of $342 million, or $4.99 per share, for the first nine months of 2004.
For the quarter, total operating income more than doubled to almost $400 million compared to approximately $160 million a year ago. Cash and cash equivalents at the end of third-quarter 2005 were $657 million, and total debt to capitalization declined to 38% compared with 48% at year-end 2004.
Tesoro reported record throughput of 559,000 bpd for the third quarter. Our employees and shareholders should be very proud of this accomplishment since it enabled us to take advantage of a strong margin environment, said Bruce A. Smith, chairman, president and CEO of Tesoro. Our solid operating performance this year has put us on track to exceed $1 billion of operating income for 2005. We expect strong industry fundamentals to continue, so the near term outlook remains very promising.
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