Fuel Sales Growth Driven by New Stores

Albertson's Fuel Express helps Tesoro; Howdy's, Catalina Marts help Western Refining

Greg Lindenberg, Editor, CSP

SAN ANTONIO & EL PASO, Texas -- Retail fuel sales volumes were up 7% year-over-year for Tesoro Corp., driven by the company's recently acquired Albertson's Fuel Express retail stations and the addition of the Shell wholesale supply contracts during the first quarter last year, president and CEO Greg Goff said during the San Antonio-based refiner-marketer's earnings call yesterday.

Same-store fuel sales during the quarter were down about 1% on a year-over-year basis. Retail fuel margins were down during the quarter both sequentially and year-over-year.

"This was likely driven by higher year-over-year street prices in California, which peaked in early March.," said Goff. "Retail marketing margins were down during the quarter, both sequentially and year-over-year. This is typical in a rising price environment where street prices tend to lag rapid increases in wholesale spot prices. Retail margins so far in the second quarter have improved from the first quarter on lower crude oil prices."

During first-quarter 2012, Tesoro closed on the purchase of 49 Albertson's Fuel Express retail stations from Minneapolis-based SUPERVALU Inc. These stations are located in Washington, Oregon, California, Nevada, Idaho, Utah and Wyoming with expected total fuel sales of about five million barrels per day.

During the month of April, Tesoro started taking possession of retail stations primarily in Southern California from Thrifty Oil Co., per the lease agreement announced in September 2011. Tesoro expects to take possession of the stations in a phased process, with approximately 175 stations scheduled to be transferred to Tesoro during the second and third quarters of 2012 and the balance of approximately 50 stations in 2014. The Thrifty retail network, which is under lease agreement with an initial term of 10 years, is expected to provide total fuel sales of between 20 million and 25 million bpd.

"These transactions add ratable and profitable supply outlets, further strengthening our refining and marketing integration," said Goff.

Tesoro reported first-quarter 2012 net income of $56 million compared to net income of $107 million for first-quarter 2011.

"We are pleased with our first-quarter results, which reflect a solid operating performance and continued execution of our strategic plan," Goff said. "We completed nearly half of our planned turnaround activity for 2012 during the quarter; made significant progress on our high-return capital program; further strengthened our refining and marketing integration; and completed the first asset dropdown to Tesoro Logistics."

For the first quarter, the company recorded segment operating income of $187 million, compared to segment operating income of $305 million in first-quarter 2011.

Tesoro is an independent refiner and marketer of petroleum products. Through its subsidiaries, Tesoro operates seven refineries in the western United States. Its retail marketing system includes 1,215 branded retail stations, of which 425 are company operated under the Tesoro, Shell and USA Gasoline brands.

Separately, El Paso, Texas-based Western Refining Inc. reported first-quarter 2012 net income of $85.1 million, compared to first-quarter 2011 net income, excluding special items, of $25.4 million. Including special items, the company recorded first-quarter 2012 net loss of $53.5 million, as compared to net income of $12.2 million for first-quarter 2011.

"We are pleased with our first-quarter results and the positive momentum that we continue to achieve. Refining margins, particularly in our geographic areas, strengthened during the quarter and exceeded what we achieved in the same quarter last year. The stronger margins, along with our continued focus on cost and operational improvements, contributed to our solid performance," said Jeff Stevens, Western Refining's president and CEO.

"In our retail business, the addition of 60 new stores in the past year drove significant fuel volume and merchandized sales growth relative to Q1 2011. Our same-store fuel volumes and merchandise sales were also improved compared to Q1 2011," he said during the company's earnings call yesterday. "We are encouraged that our retail is well-positioned to capitalize on the upcoming summer season."

Among those stores were 34 Howdy's locations acquired in September 2011 and 17 Catalina Marts acquired in June 2011 (see Related Content below for previous CSP Daily News coverage).

Western Refining is an independent refining and marketing company that operates refineries in El Paso and in Gallup, N.M. Its asset portfolio also includes standalone refined products terminals in Albuquerque and Bloomfield, N.M, and retail gas stations and convenience stores in Arizona, Colorado, New Mexico and Texas, a fleet of crude oil and finished product truck transports, wholesale petroleum products operations in Arizona, California, Colorado, Maryland, Nevada, New Mexico, Texas and Virginia, as well as asphalt operations.