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Tesoro Corporation reports on record second quarter

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Hydrocarbon Engineering,

Tesoro Corporation reported 2Q15 net earnings of US$582 million, or US$4.59 per diluted share, compared to net earnings of US$224 million, or US$1.70 per diluted share, for 2Q14. Net earnings from continuing operations for the second quarter were US$586 million, or US$4.62 per diluted share. Adjusted EBITDA for 2Q15 was US$1.2 billion compared to US$548 million last year.

"We achieved record levels of EBITDA, net income and EPS for the quarter, underscoring our ability to efficiently optimise our assets across the value chain and leverage favourable market conditions" said Greg Goff, Chairman and CEO. "We returned in excess of US$300 million to shareholders in the second quarter and delivered over US$325 million in business improvements so far this year. The third quarter is off to an excellent start in the current strong margin environment and we expect our refineries to run at 95% to 100% utilisation."

For 2Q15, the company recorded segment operating income of US$1.1 billion compared to segment operating income of US$494 million in 2Q14. The increase was largely driven by strong demand, continued growth in the logistics segment and business improvements.

The refining segment's operating income was US$753 million for the quarter, compared to US$358 million in 2Q14. The refineries benefitted from a substantially improved margin environment and lower operating expenses partially offset by turnarounds and maintenance activities.

Total refinery throughput for the quarter was 783 thousand bpd, or 92% utilisation. Manufacturing costs in 2Q15 decreased US$0.30/bbl over last year to US$5.58/bbl primarily attributable to lower energy prices.

The Tesoro Index was US$21.61/bbl for 2Q15 with a realised gross refining margin of US$19.13/bbl or 89% of the Tesoro Index, compared to a realised gross refining margin of US$13.11 or 101% of the Tesoro Index last year. Capture rates in the quarter were impacted by the combination of refinery downtime, less advantaged crude oil differentials, and increased processing of intermediate feedstocks in the California and Pacific Northwest refineries.

The logistics segment's operating income was US$109 million in 2Q15 compared to US$48 million in 2Q14. This growth was driven by the Rockies natural gas business and additional volumes from last year's expansion and reversal project on the High Plains Pipeline in North Dakota.

The retail segment is now referred to as Marketing which includes all retail and wholesale operations. The marketing segment's operating income was US$212 million, up from US$88 million in 2Q14. The increase was due to strong market conditions and growing consumer demand.

Corporate and unallocated costs for 2Q15 were US$65 million, including US$5 million of corporate depreciation and variable stock based compensation expense of US$7 million.

Strategic update

The company is confident in achieving its 2015 plan of delivering approximately US$670 million of business improvements. During the first half of 2015, Tesoro estimates that it delivered US$325 million towards its ongoing initiatives around synergies and business improvement objectives, including approximately US$70 million related to West Coast improvements, approximately US$100 million related to capturing margin improvements, and approximately US$155 million from growing logistics operations.

Tesoro Logistics completed the integration of the Rockies natural gas business and closed the merger of QEPM in July. Through the first half of 2015, the Rockies natural gas business delivered approximately US$141 million of adjusted EBITDA, including US$14 million of synergies. Tesoro Logistics expects the Rockies natural gas business to deliver US$25 million of synergies in 2015.

Tesoro expects to offer Tesoro Logistics the opportunity to acquire crude oil and refined product storage and pipeline assets in Los Angeles in 4Q15. Tesoro expects these assets to deliver an annual EBITDA of US$50 to US$75 million to TLLP.

In 2Q15, the company completed the second phase of the Salt Lake City Conversion Project. The project is designed to improve yields of gasoline and diesel, improve the flexibility of processing crude feedstocks and increases total throughput capacity by 4000 bpd. The refinery is currently processing approximately 22 000 bpd of waxy crude.

The permitting process for the Vancouver Energy project to construct a 360 000 bpd crude oil rail to marine terminal has been delayed by the Washington State's Energy Facility Site Evaluation Committee (EFSEC). EFSEC has begun the adjudicative phase and now indicates that it expects to release the Draft Environmental Impact Statement by November of 2015. The Company expects that EFSEC will submit its recommendation to the governor of Washington once it completes the adjudicative phase.

Adapted from press release by Rosalie Starling

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