Tesoro Corporation Announces Third Quarter 2009 Results and 2010 Capital Budget
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SAN ANTONIO--(BUSINESS WIRE)-- Tesoro Corporation (NYSE: TSO) today reported third quarter 2009 net earnings of $33 million, or $0.24 per diluted share compared to net earnings of $259 million, or $1.86 per diluted share for the third quarter of 2008. For the nine months ended September 30, 2009, net income was $39 million, or $0.28 per diluted share, versus $181 million, or $1.30 per diluted share for the nine months ended September 30, 2008.
Third quarter segment operating income was $137 million compared to $510 million in the third quarter of 2008 as a result of lower gross margins.
The Company's realized gross margin of $9.59 per barrel (/bbl) decreased by $7.10/bbl from a year ago, primarily as a result of lower margins for distillates and narrowing differentials for heavy crudes. West Coast diesel margins averaged less than $10/bbl, down from over $24/bbl in the third quarter a year ago. Discounts for heavy crudes weakened in the third quarter as spot prices for Oriente crude traded at less than $7/bbl below Alaska North Slope crude (ANS) versus more than $13/bbl a year ago. West Coast spot gasoline prices, which traded $12/bbl above ANS in the third quarter last year, increased to over $17/bbl during the quarter. In light of the relative strength in gasoline margins, the Company shifted 6% production into the gasoline pool versus a year ago.
Total system throughput for the third quarter was 564 thousand barrels per day (mbpd), down 9% from the 2008 third quarter. The Company continues to target throughput and inventory levels to meet product demand in our markets.
The retail marketing 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 $0.28 cents per gallon (cpg), slightly down from $0.30cpg 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 the 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 5-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."
Capital Program Update
For the third quarter 2009, capital expenditures were $109 million, including turnaround spending. We expect to spend less than our announced capital budget of $600 million for the full year which includes $40 million for income improvement projects.
The Company's initial 2010 capital budget estimate is $675 million, including approximately $50 million for income improvement projects.
"When we rolled out our 2009 business plan at the end of last year, we said that we intended to improve our cash position and cost structure. We are pleased with the progress we have made on expenses and our cash position has improved. We also stated that it was essential that we see improvement in the marketplace prior to allocating discretionary capital to our asset base. With cost improvements and a good cash balance, we now have an opportunity to begin modest funding of a portion of this program," said Smith. "These organic growth projects have small capital requirements and average one to two year simple paybacks. We believe this is the appropriate time to selectively fund projects that will create value for the shareholders."
Quarterly Dividend Update
Tesoro announced today that its Board of Directors has revised the quarterly cash dividend to $0.05 per share. The dividend is payable December 15th, 2009 to shareholders of record as of December 1st, 2009.
"While we ended the third quarter with adequate cash to fund our expected 2010 capital budget, the 40% reduction in West Coast margins from September to October has proven that even in times of stability, margins can be volatile. The reduction in our dividend puts us more in line with our historical yield, while allowing this capital to be re-deployed in support of our 2010 business plan, if necessary," said Smith.
Analyst and Investor Presentation
The Company will be holding an Analyst and Investor Presentation in New York City tomorrow, November 10, 2009 at 4:30 p.m. ET. Analysts and investors are invited to the Down Town Association in Lower Manhattan to attend the presentation, which will include an update on the 2009 improvement initiatives, the 2010 business plan and capital program. The presentation will be followed by a question and answer session and a cocktail reception with members of senior management. Because space is limited, reservations will be required to attend and accepted on a first-come, first-serve basis. Interested parties should contact Brad McMurray in the Investor Relations department via email at bradford.c.mcmurray@tsocorp.com or phone by calling 210-626-4676.
Public Invited to Listen to Analyst Conference Call
At 1:30 p.m. CT this afternoon, Tesoro will broadcast, live, its conference call with analysts regarding second quarter 2009 results and other business matters. Interested parties may listen to the live conference call over the Internet by logging on to http://www.tsocorp.com, or via phone by dialing (877) 485-3104 (international dial-in: (201) 689-8579), event ID 00334395. A telephone replay of the call will be available for one week, and may be accessed via phone by dialing (877) 660-6853 (international replay: (201) 612-7415 and entering passcode 334395.
Tesoro Corporation, a Fortune 100 company, is an independent refiner and marketer of petroleum products. Tesoro, through its subsidiaries, 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 over 860 branded retail stations, of which over 380 are company operated under the Tesoro(R), Shell(R), Mirastar(R) and USA Gasoline(TM) brands.
This earnings release contains certain statements that are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning the market environment, and our expectations about our capital spending and our margin capture. For more information concerning factors that could affect these statements see our annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. We undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances that occur, or which we become aware of, after the date hereof."
TESORO CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(In millions except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Revenues(a) $ 4,742 $ 8,682 $ 12,203 $ 24,175
Costs and Expenses:
Costs of sales and operating 4,492 8,049 11,536 23,351
expenses (a) (b)
Selling, general and 55 68 162 178
administrative expenses
Depreciation and amortization 102 99 315 288
Loss on asset disposals and 4 14 25 37
impairments
Operating Income 89 452 165 321
Interest and Financing Costs (35 ) (30 ) (94 ) (83 )
Interest Income - 2 3 5
Foreign Currency Exchange Loss (3 ) - (13 ) (8 )
Other Income (c) - 1 - 50
Earnings Before Income Taxes 51 425 61 285
Income Tax Provision 18 166 22 104
Net Earnings $ 33 $ 259 $ 39 $ 181
Net Earnings Per Share:
Basic $ 0.24 $ 1.89 $ 0.28 $ 1.33
Diluted $ 0.24 $ 1.86 $ 0.28 $ 1.30
Weighted Average Common Shares:
Basic 138.2 137.1 138.0 136.6
Diluted 139.7 139.4 139.6 139.3
We have reclassified our gains and losses associated with our derivative
instruments for the 2008 periods from "Revenues" to "Costs of sales and
operating expenses" to conform to the 2009 presentation. The
(a) reclassifications totaled a $6 million loss and a $16 million gain during
the three months ended September 30, 2009 and 2008, respectively, and
losses of $61 million and $192 million during the nine months ended
September 30, 2009 and 2008, respectively.
At both September 30, 2009 and 2008, reductions in petroleum inventories
resulted in decreases of last-in-first-out ("LIFO") layers acquired at
(b) lower per-barrel costs. These inventory reductions resulted in decreases to
costs of sales of $12 million during the three and nine months ended
September 30, 2009 and $68 million and $146 million during the three months
and nine months ended September 30, 2008, respectively.
Other income for the three and nine months ended September 30, 2008
(c) represents refunds received from the Trans Alaska Pipeline System in
connection with rulings by the Regulatory Commission of Alaska concerning
our protest of intrastate pipeline tariffs set between 1997 and 2003.
TESORO CORPORATION
SELECTED OPERATING SEGMENT DATA
(Unaudited)
(In millions)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Operating Income (Loss)
Refining $ 84 $ 476 $ 268 $ 474
Retail 53 34 42 (5 )
Total Segment Operating 137 510 310 469
Income
Corporate and Unallocated (48 ) (58 ) (145 ) (148 )
Costs
Operating Income 89 452 165 321
Interest and Financing (35 ) (30 ) (94 ) (83 )
Costs
Interest Income - 2 3 5
Foreign Currency Exchange (3 ) - (13 ) (8 )
Loss
Other Income (c) - 1 - 50
Earnings Before Income $ 51 $ 425 $ 61 $ 285
Taxes
Depreciation and
Amortization
Refining $ 86 $ 83 $ 263 $ 239
Retail 10 10 29 32
Corporate 6 6 23 17
Depreciation and $ 102 $ 99 $ 315 $ 288
Amortization
Capital Expenditures
Refining $ 91 $ 119 $ 250 $ 407
Retail 1 4 10 10
Corporate 4 7 31 24
Capital Expenditures $ 96 $ 130 $ 291 $ 441
BALANCE SHEET DATA
(Unaudited)
(Dollars in millions)
September 30, December 31,
2009 2008
Cash and Cash Equivalents $ 534 $ 20
Total Assets $ 8,244 $ 7,433
Total Debt $ 1,839 $ 1,611
Total Stockholders' Equity $ 3,238 $ 3,218
Total Debt to 36 % 33 %
Capitalization Ratio
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
REFINING SEGMENT
Total Refining Segment
Throughput (thousand barrels per
day)
Heavy crude (d) 162 221 176 194
Light crude 361 364 342 380
Other feedstocks 41 37 37 35
Total Throughput 564 622 555 609
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 289 283 278 282
Jet fuel 79 82 70 80
Diesel fuel 113 158 115 144
Heavy oils, residual products,
internally produced fuel
and other 115 132 124 133
Total Yield 596 655 587 639
Gross refining margin $ 9.59 $ 16.69 $ 10.04 $ 11.21
($/throughput bbl) (e)
Manufacturing cost before
depreciation
and amortization ($/throughput $ 4.79 $ 5.24 $ 4.90 $ 5.29
bbl) (e)
Segment Operating Income ($
millions)
Gross refining margin (f) $ 498 $ 955 $ 1,521 $ 1,869
Expenses
Manufacturing costs 248 300 743 883
Other operating expenses 69 88 205 234
Selling, general and 7 8 19 29
administrative
Depreciation and amortization (g) 86 83 263 239
Loss on asset disposals and 4 - 23 10
impairments (h)
Segment Operating Income $ 84 $ 476 $ 268 $ 474
Refined Product Sales (thousand
barrels per day) (i)
Gasoline and gasoline blendstocks 309 327 311 330
Jet fuel 92 94 83 95
Diesel fuel 129 164 123 146
Heavy oils, residual products and 81 97 85 98
other
Total Refined Product Sales 611 682 602 669
Refined Product Sales Margin
($/barrel) (i)
Average sales price $ 83.71 $ 131.21 $ 70.17 $ 124.68
Average costs of sales 76.47 117.83 61.72 114.43
Refined Product Sales Margin $ 7.24 $ 13.38 $ 8.45 $ 10.25
(d) We define heavy crude oil as crude oil with an American Petroleum Institute
gravity of 24 degrees or less.
(e)
Management uses gross refining margin per barrel to evaluate performance
and compare profitability to other companies in the industry. Gross
refining margin per barrel is calculated by dividing gross refining margin
by total refining throughput and may not be calculated similarly by other
companies. Gross refining margin is calculated as revenues less costs of
feedstocks, purchased refined products, transportation and distribution.
Management uses manufacturing costs per barrel to evaluate the efficiency
of refinery operations. Manufacturing costs per barrel is calculated by
dividing manufacturing costs by total refining throughput and may not be
comparable to similarly titled measures used by other companies. Investors
and analysts use these financial measures to help analyze and compare
companies in the industry on the basis of operating performance. These
financial measures should not be considered as alternatives to segment
operating income, revenues, costs of sales and operating expenses or any
other measure of financial performance presented in accordance with
accounting principles generally accepted in the United States of America.
Consolidated gross refining margin totals gross refining margin for each of
our regions adjusted for other costs not directly attributable to a
(f) specific region. Gross refining margin includes the effect of intersegment
sales to the retail segment at prices which approximate market. Gross
refining margin approximates total refining throughput times gross refining
margin per barrel.
Includes manufacturing depreciation and amortization per throughput barrel
(g) of approximately $1.57 and $1.39 for the three months ended September 30,
2009 and 2008, respectively, and $1.63 and $1.35 for the nine months ended
September 30, 2009 and 2008, respectively.
Includes a termination charge of $12 million during the nine months ended
(h) September 30, 2009, related to cancelling the purchase of equipment
associated with a capital project at our Los Angeles refinery.
Sources of total refined product sales included refined products
manufactured at the refineries and refined products purchased from third
(i) parties. Total refined product sales margin includes margins on sales of
manufactured and purchased refined products and the effects of inventory
changes.
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Refining By Region
California (Golden Eagle and Los
Angeles)
Throughput (thousand barrels per
day) (j)
Heavy crude (d) 147 188 161 163
Light crude 63 66 61 77
Other feedstocks 25 19 23 21
Total Throughput 235 273 245 261
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 140 135 138 136
Jet fuel 17 19 17 19
Diesel fuel 47 83 53 70
Heavy oils, residual products,
internally produced fuel
and other 53 59 59 55
Total Yield 257 296 267 280
Gross refining margin $ 250 $ 458 $ 771 $ 1,016
Gross refining margin $ 11.54 $ 18.22 $ 11.54 $ 14.22
($/throughput bbl) (e)
Manufacturing cost before
depreciation
and amortization ($/throughput $ 7.02 $ 7.47 $ 6.72 $ 7.51
bbl) (e)
Pacific Northwest (Alaska &
Washington)
Throughput (thousand barrels per
day) (j)
Heavy crude (d) - 1 - 9
Light crude 145 148 127 148
Other feedstocks 10 13 9 9
Total Throughput 155 162 136 166
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 69 67 61 66
Jet fuel 33 35 26 32
Diesel fuel 26 32 23 32
Heavy oils, residual products,
internally produced fuel
and other 32 34 30 41
Total Yield 160 168 140 171
Gross refining margin $ 129 $ 205 $ 335 $ 372
Gross refining margin $ 9.08 $ 13.76 $ 9.04 $ 8.19
($/throughput bbl) (e)
Manufacturing cost before
depreciation
and amortization ($/throughput $ 3.04 $ 3.79 $ 3.74 $ 3.94
bbl) (e)
Mid-Pacific (Hawaii)
Throughput (thousand barrels per
day)
Heavy crude (d) 15 32 15 22
Light crude 51 40 53 48
Total Throughput 66 72 68 70
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 16 16 17 16
Jet fuel 19 18 18 19
Diesel fuel 12 11 11 11
Heavy oils, residual products,
internally produced fuel
and other 20 28 24 26
Total Yield 67 73 70 72
Gross refining margin $ 7 $ 80 $ 78 $ 30
Gross refining margin $ 1.05 $ 12.15 $ 4.17 $ 1.55
($/throughput bbl) (e)
Manufacturing cost before
depreciation
and amortization ($/throughput $ 3.26 $ 3.45 $ 3.07 $ 3.23
bbl) (e)
We experienced reduced throughput due to turnarounds at the Alaska and
Golden Eagle refineries during the 2009 second quarter, scheduled
(j) maintenance at the Washington refinery during the 2009 first quarter, and
scheduled turnarounds at the Golden Eagle refinery during the 2008 first
and second quarters and at the Washington refinery during the 2008 first
quarter.
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Mid-Continent (North Dakota & Utah)
Throughput (thousand barrels per
day)
Light crude 102 110 101 107
Other feedstocks 6 5 5 5
Total Throughput 108 115 106 112
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 64 65 62 64
Jet fuel 10 10 9 10
Diesel fuel 28 32 28 31
Heavy oils, residual products,
internally produced fuel
and other 10 11 11 11
Total Yield 112 118 110 116
Gross refining margin $ 115 $ 213 $ 337 $ 448
Gross refining margin $ 11.50 $ 20.10 $ 11.64 $ 14.61
($/throughput bbl) (e)
Manufacturing cost before
depreciation
and amortization ($/throughput $ 3.37 $ 3.12 $ 3.39 $ 3.42
bbl) (e)
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
RETAIL SEGMENT
Number of Stations (end of period)
Company-operated 387 391 387 391
Branded jobber/dealer 479 492 479 492
Total Stations 866 883 866 883
Average Stations (during period)
Company-operated 388 414 388 432
Branded jobber/dealer 483 495 487 488
Total Average Retail Stations 871 909 875 920
Fuel Sales (millions of gallons)
Company-operated 262 258 775 815
Branded jobber/dealer 83 76 229 211
Total Fuel Sales 345 334 1,004 1,026
Fuel Margin ($/gallon) (k) (l) $ 0.28 $ 0.30 $ 0.19 $ 0.18
Merchandise Sales ($ millions) $ 57 $ 60 $ 159 $ 171
Merchandise Margin ($ millions) $ 14 $ 16 $ 39 $ 44
Merchandise Margin % 25 % 27 % 25 % 26 %
Segment Operating Income (Loss) ($
millions)
Gross Margins
Fuel (l) $ 98 $ 99 $ 189 $ 181
Merchandise and other non-fuel 21 22 58 60
margin
Total Gross Margins 119 121 247 241
Expenses
Operating expenses 51 56 153 170
Selling, general and 5 7 21 19
administrative
Depreciation and amortization 10 10 29 32
Loss on asset disposals and - 14 2 25
impairments (m)
Segment Operating Income (Loss) $ 53 $ 34 $ 42 $ (5 )
Management uses fuel margin per gallon to compare profitability to other
companies in the industry. Fuel margin per gallon is calculated by dividing
fuel gross margin by fuel sales volumes and may not be calculated similarly
(k) by other companies. Investors and analysts use fuel margin per gallon to
help analyze and compare companies in the industry on the basis of
operating performance. This financial measure should not be considered as
an alternative to segment operating income and revenues or any other
measure of financial performance presented in accordance with U.S. GAAP.
(l) Includes the effect of intersegment purchases from the refining segment at
prices which approximate market.
Includes impairment charges related to a potential sale of 20 retail
(m) stations during the 2008 first quarter and the closure of 42 Mirastar
stations during the 2008 third quarter.
Source: Tesoro Corporation
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