Tesoro Tops Off

Adding 292 sites through Supervalu, Thrifty Oil deals; remains committed to integrated refining, marketing

Linda Abu-Shalback Zid, Senior Editor

SAN ANTONIO -- Tesoro Corp. is expanding its retail operations by 25%, with the goal of increasing the company's integration of refineries and marketing efforts. "We want to keep our refineries full and operating, and have a secure home for the products that we produce," Tesoro spokesperson Mike Marcy told CSP Daily News.

As reported in Morgan Keegan/CSP Daily News Flashes on Wednesday and Thursday, the company has entered into deals with Supervalu Inc. and Thrifty Oil, respectively, for a total of 292 retail sites.

On Wednesday, Tesoro announced that it will purchase 51 Albertson's Fuel Express stations in Washington, Oregon, California, Nevada, Idaho, Utah and Wyoming from Supervalu Inc. with total fuel sales of more than 5,000 barrels per day. The cost of the transaction is $34 million, and the company plans to invest an incremental $5 million in branding capital. Tesoro expects to complete the transaction near the end of 2011, and Marcy said most of the stations will be rebranded with Tesoro's USA Gasoline and Tesoro brands.

(Click here for previous coverage, including additional details on the sale of SuperValu sites to Alimentation Couche-Tard Inc. (Circle K), Holiday Stationstores and Stinker Stores Inc.)

Separately, on Thursday Tesoro announced that it will lease 241 retail stations located primarily in southern California from Thrifty Oil Co., Santa Fe Springs, Calif., for an initial term of 10 years, and it will invest $28 million in branding capital. These stations have total fuel sales of 25,000 to 30,000 barrels per day.

Tesoro will take possession of the Thrifty Oil stations in a phased process, with approximately 190 stations online in 2012 and the balance of approximately 50 stations in 2014.

Marcy explained that the two-phased system is "just a question of when the leases come up."

The majority of the leased sites will be marketed under Tesoro's existing brands, although he added, "We certainly will keep a number of the Thrifty brands, because that's a very recognized brand in some markets."

Unlike Sunoco, however, which recently added 215 retail sites, but also which announced it would exit the refining business (click here for previous coverage), Marcy said that Tesoro's business model historically has been as a merchant refiner--and the company plans to continue its ongoing commitment to private-branded marketers and hypermarket customers.

"I think that the dynamics of the marketplace where [Sunoco] conduct[s] their business and where we conduct our business are vastly different," he said. "Whatever strategies and pressures they may be feeling, they're not the same strategies and challenges that we face."

He said that Tesoro is focused on its seven refineries in the western United States. "We feel that there are some real opportunities for us where we operate, both because of where the refineries are located along the Pacific Rim and in the Great Plains/Upper Midwest area, and we believe that there is a continuing need for the products that we make." He added, "For lack of a better term, we're bullish on America."

"The combined purchase and lease of these stations strengthens our refining and marketing integration by about 12%, adds profitable and secure outlets for our refined products and improves our company's overall portfolio of retail assets," Greg Goff, president and CEO of Tesoro, said in a statement.

Going forward, Tesoro also will continue to increase integration between refining and marketing. "There is any number of ways that we can increase our sales in the marketplace, and some of those strategies are privy and confidential at this point. We will continue to assess our options," Marcy said.

San Antonio, Texas-based Tesoro is an independent refiner and marketer of petroleum products. Through its subsidiaries, Tesoro 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 approximately 375 are company operated under the Tesoro, Shell and USA Gasoline brands.

For more on the unprecedented merger-and-acquisition activity over past six months, watch for CSP magazine's October cover story.