Company News

MSO Shift Triggers Tesoro Realignment

Combines retail, wholesale operations into marketing segment

SAN ANTONIO – Following the conversion of all company-operated gas stations to multi-site operator (MSO) model announced in December 2014, Tesoro Corp. has combined its wholesale and retail operations into one segment that it now refers to as “marketing,” Steven Sterin, CFO and executive vice president, said during the company’s second-quarter 2015 earnings call.


The change “reflects our current business model and shows the combined value of the sales channels we use to reach our customers,” he said.

Under the MSO arrangements, where Tesoro continues to own and have the rights to revenues earned from the transportation fuels sold at these locations, it no longer operates the convenience stores, owns the related merchandise inventory or employs the store employees as the MSO operates the stations. It sells gasoline and diesel through these MSO-operated gas stations and agreements with third-party branded dealers and distributors.

“As we moved to the MSO model on our retail business, we created this marketing segment so you can see all of our customer-facing business in one place,” Sterin continued. “The real focus is on creating value through our strategy, being integrated. You look at the performance of that business over the last couple years—it has improved dramatically. In fact, if you look at the last 12 months, it's generated more than $800 million of EBITDA on its own. And as we look forward, we're going to lay out our strategy at the end of the year … to create further value in the marketing segment.”

“Just taking product to the racks when we have excess product—that is not included in there,” Greg Goff, chairman, president and CEO said. The wholesale business “is business that's committed to customers. So where we have contracts with specific customers, that's what the wholesale part of the business is in addition to our retail business.”

It is only rack to retail; spot to rack is still within the refining segment, he confirmed, adding, “Initially, it was our retail marketing business where we had our brand—that was given that customers used a brand that either Tesoro owns or we have the rights to offer to customers. That was our retail business—the ARCO business, the Tesoro business, the U.S.A., some Shell, some Exxon and some Mobil. That was the legacy retail segment that reported externally. Today, in addition to that, we have customers that do not use our brand, but that have contracts to buy business from us on sometimes long-term contracts and sometimes a little bit shorter term, but it's that business that's in there.”

Teasing the possibility of a spinoff, Goff said, “We believe it's critical that we maintain that high integration in our refining and marketing business. It's a fundamental part of our business model. … [But] we're going to look at every possible idea, and we're going to be focused on how do we create the maximum value for the owners of the company.”

Second-Quarter Results

Tesoro Corp. has reported second-quarter 2015 net earnings of $582 million, compared to net earnings of $224 million for second-quarter 2014.

The refining segment's operating income was $753 million for the quarter, compared to $358 million in the second quarter of 2014.

Operating income for the retail segment, now referred to as marketing, and which includes all retail and wholesale operations, was $212 million, up from $88 million in the second quarter of last year.

The increase was due to strong market conditions and growing consumer demand, the company said.

San Antonio-based Tesoro is an independent refiner and marketer of petroleum products. Through its subsidiaries, Tesoro operates six refineries in the western United States and owns a logistics business which includes a 36% interest in Tesoro Logistics LP and ownership of its general partner. Tesoro's retail-marketing system includes more than 2,265 gas stations under the ARCO, Shell, Exxon, Mobil, USA Gasoline and Tesoro brands.

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