Third-quarter segment operating income was $137 million compared to $510 million in third-quarter 2008 as a result of lower gross margins.
The retail marketing [image-nocss] business recorded $53 million in operating income, versus $34 million a year ago. The 2008 results included a write down and other expenses associated with the closing of certain retail sites. The company's fuel gross margins in the quarter averaged 28 cents per gallon (cpg), slightly down from 30 cpg a year ago. Operating costs in the retail segment were lower by $7 million versus the third quarter last year due to lower credit-card fees associated with lower fuel prices, as well as lower employee costs.
Refining direct manufacturing costs before depreciation and amortization were $248 million in the third quarter versus $238 million in second-quarter 2009. The difference is primarily attributable to higher repair and maintenance costs and increased purchased energy usage.
"We were pleased to report a quarterly profit in this difficult economic environment," said Bruce Smith, chairman, president and CEO. "Although economic concerns persist in light of high unemployment rates and weak industrial activity, the West Coast region has remained in better balance to current demand as gasoline and diesel inventories remain near their five-year average. We continue to view the West Coast as an attractive market in which to do business, especially with the increasing stability in gasoline demand we are experiencing through our retail channels."
San Antonio, Texas-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 665,000 barrels per day. Tesoro's retail marketing system includes more than 860 branded retail stations, of which more than 380 are company operated under the Tesoro, Shell, Mirastar and USA Gasoline brands.
Separately, El Paso, Texas-based Western Refining Inc. has reported a net loss of $4.8 million, or 5 cents per diluted share, for third-quarter 2009. The company's net income was $109.2 million, or $1.60 per diluted share, for the same period in 2008.
The year-over-year decline in net income was primarily due to lower refined product margins driven by weakness in finished product prices relative to crude and feedstock costs.
Paul Foster, Western's CEO, said, "Refining margins were depressed during the third quarter, historically a strong quarter for refiners, primarily due to the prolonged economic slowdown. Overall, margins declined substantially in the latter part of the quarter; however, we are pleased that fuel volumes and margins remained stable in our wholesale operations and that our retail unit had a strong quarter despite the challenging marketplace."
In addition to the refinery consolidation, the company has also identified a number of additional cost savings initiatives that will generate approximately $25 million in annualized savings. The majority of these actions are in the early stages of implementation and will be fully realized beginning in first-quarter 2010.
In conclusion, Foster stated, "The market is certainly challenging, but we are continuing to take decisive actions to ensure we are running our operations in a reliable and cost effective manner which we believe will allow us to be profitable over the long run in a variety of market conditions."
Western Refining is an independent refining and marketing company with a refinery in El Paso, two refineries in the Four Corners region of northern New Mexico and a refinery in Yorktown, Va. It has retail gas stations and convenience stores in Arizona, Colorado and New Mexico, a fleet of crude oil and finished product truck transports and wholesale petroleum products operations in Arizona, California, Colorado, Nevada, New Mexico, Texas and Utah.
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