Tesoro's Profit Jumps Fivefold to $259 Million as Lower Crude Oil Prices Boost Refining Margins

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Researched by Industrial Info Resources (Sugar Land, Texas)--Tesoro Corporation (NYSE:TSO) (San Antonio, Texas) has announced that its third-quarter profit has jumped more than five times to $259 million, compared with $47 million in the same period last year. The company experienced a large boost to refining margins from the steep drop in crude oil prices from the record-highs set in the summer. Refining operating income totaled $476 million, almost $400 million higher than the second quarter, largely because of improved capture rates and lower energy costs, Chief Financial Officer Otto Schwethelm said. Retail operating income was $34 million, up from $4 million in the second quarter, he said. A one-time accounting gain was also factored into the net income. "In a significant reversal of early year financial performance, the company reported one of its best quarters ever, highlighting our ability to quickly adapt to the volatile market, execute self-help initiatives and generate cash," he said.

Tesoro has implemented a self-help program that focuses on generating more cash, lowering costs and transitioning the company's operating strategy from one that maximizes available throughput capacity to one that optimizes the profitability of the marginal barrel of oil, said Bruce Smith, Chairman, President and CEO. "The essence of this strategy implies that we knowingly accept the risk that we may suboptimize our throughput," he said. "But with low margins, that becomes a very acceptable risk."

Tesoro's Throughput Capacity

• Pacific Northwest: 140,000-160,000 barrels per day (BBL/d)
• Mid-Pacific: 60,000-70,000 BBL/d
• Mid-Continent: 105,000-115,000 BBL/d
• California: 250,000-270,000 BBL/d

The company's operations in California were significant contributors to the third-quarter profit, including an upgraded delayed coker at the Golden Eagle refinery in Martinez. In Hawaii, some system changes allowed the company to eliminate most of its need for expensive light sweet crude oil. Capital expenditures, including turnarounds, totaled $137 million in the quarter and $524 million since the beginning of the year, Schwethelm said. "Based on our current plan, we are forecasting to spend less than $775 million for the full year, which is around $100 million below our previous plan," he said.

As part of the Refinery Tracker, Industrial Info is monitoring 42 active Tesoro projects worth $877.1 million in the U.S. The database includes projects ranging from $1 million maintenance turnarounds to a $300 million sulfur-recovery unit addition at the Golden Eagle refinery.

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