Tesoro Corporation reported 4Q15 net earnings of US$54 million, or US$0.45 per diluted share versus US$145 million or US$1.13 per diluted share in the fourth quarter of last year. These results include a pre-tax charge of US$276 million related to a lower of cost or market (LCM) adjustment. This adjustment is a result of the significant decline in crude oil and product prices relative to our LIFO inventory. Excluding this LCM charge, adjusted earnings were US$221 million, or US$1.83 per diluted share. Reported results in the quarter included US$24 million, or US$0.07 per diluted share, from an environmental accrual in our logistics business, US$30 million, or US$0.15 per diluted share from the impact of purchasing additional RINs to comply with the final requirements from the EPA which were increased from the proposed levels for the Renewable Fuel Standard programme, and US$15 million, or US$0.07 per diluted share, of asset impairments due to the current weak crude oil price environment.
"2015 was a record year for EBITDA, net income and earnings per share, despite a challenging fourth quarter" said Greg Goff, Chairman and CEO. "We continued to strengthen our business as we estimate that we delivered approximately US$670 million of improvements in 2015. We generated solid free cash flow and returned over US$870 million to shareholders in the form of dividends and share repurchases. Going into 2016, we remain focused on driving strong operating performance and executing on our business plans in a challenging business environment."
The refining segment's operating income was US$4 million for the quarter, compared to US$90 million in the fourth quarter of 2014. Excluding the lower of cost or market adjustment this quarter, the refining segment's operating income was US$280 million. The segment's performance in the fourth quarter was negatively impacted by unplanned downtime of both fluid catalytic crackers at the Los Angeles refinery.
The Tesoro Index was US$15.60/bbl for the fourth quarter of 2015 with a realised gross refining margin of US$12.76/bbl or 82% of the Tesoro Index. Capture rates in the quarter were impacted by a combination of weaker crude oil differentials and the operational interruption at the Los Angeles refinery.Total refinery throughput for the quarter was 807 000 bpd, or 95% utilisation. Direct manufacturing costs in the fourth quarter were US$5.62/bbl up US$0.78/bbl from the third quarter. This increase was primarily due to unplanned repairs and maintenance during the quarter.
The logistics segment's operating income was US$104 million in the fourth quarter compared to US$32 million a year ago. This growth was primarily driven by contributions from the Rockies natural gas business. Fourth quarter results include a charge of US$24 million for an environmental accrual related to the 2013 crude oil pipeline release at Tioga, North Dakota.
The marketing segment's operating income was US$175 million, down from US$261 million in the fourth quarter of last year, largely attributable to lower comparable marketing margins. Same store fuel sales during the quarter were higher by 1% versus fourth quarter last year, driven by strong demand.Corporate and unallocated costs for the quarter were US$97 million. The effective tax rate was 36.6% in the fourth quarter.
For 2015, the company estimates that it delivered approximately US$670 million towards its ongoing focus to improve gross margin and manage costs to drive improvement in operating income. This includes about US$350 million related to West Coast improvements and capturing margin improvements. Tesoro delivered approximately US$320 million from growing its logistics operations, which includes contributions from the Rockies natural gas business.
Tesoro expects to deliver between US$400 and US$500 million of improvements in 2016 through driving operational improvements and growth in the Company's logistics and marketing business segments.
Tesoro recently closed the acquisition of Great Northern Midstream LLC, a crude oil logistics provider, which owns and operates a high quality, recently constructed crude oil pipeline, gathering system, transportation, storage and rail loading facilities in the Williston Basin of North Dakota. This transaction benefits Tesoro by providing direct access to additional advantaged crude oil for its West Coast refineries and has the potential to reduce supply costs as the Company continues to strengthen its supply position. Additionally, the system will provide ratable pipeline volumes that should ultimately benefit Tesoro Logistics once offered to the master limited partnership, which is expected in 2016.
Tesoro's Alaska subsidiary agreed to acquire Flint Hills Resources' (FHR) wholesale marketing and logistics assets in Anchorage and Fairbanks, Alaska. This transaction improves Tesoro's ability to serve customers from its existing Anchorage terminal, as a result of Tesoro gaining access to rail loading capabilities located at the FHR Anchorage terminal. This extends Tesoro's ability to efficiently and reliably serve the Alaska interior. Tesoro plans to offer qualified third parties access to the FHR Anchorage terminal. Additionally, Tesoro expects to offer to Tesoro Logistics the opportunity to acquire these assets.
Adapted from press release by Rosalie Starling
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