EX-99.1 2 a5534316ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 Tesoro Corporation Announces Third Quarter Results SAN ANTONIO--(BUSINESS WIRE)--Nov. 1, 2007--Tesoro Corporation (NYSE:TSO) today reported net income of $47 million, or $0.34 per share in the third quarter of 2007, compared to $274 million, or $1.96 per share in the third quarter of 2006. Year-to-date net income totaled $606 million, or $4.35 per share versus $643 million, or $4.58 per share a year ago. Quarterly benchmark crack spreads in the West Coast and Pacific Northwest regions were down 28% and 34%, respectively from a year ago. Consequently, refining margins during the quarter of $9.09 per throughput barrel were $6.16 below those in the third quarter of 2006. "The industry experienced a significant increase in crude prices in the third quarter, while product prices rose at a much slower rate," said Bruce Smith, Tesoro's Chairman, President and CEO. "These market fundamentals were the single biggest impact to our quarterly earnings versus last year. The lower margin environment and rapid rise in crude price also negatively impacted other segments of our business, including marketing and our long haul crude hedge program," said Smith. The reduction to refinery margins from the realized and unrealized third quarter hedge program was $28 million. Operationally, the company reported throughput of 654 thousand barrels per day (mbpd) for the quarter. Overall refinery utilization was good, although the company did experience some unplanned downtime at our Anacortes and Golden Eagle refineries. Throughput for the quarter at the Golden Eagle refinery was 11 mbpd lower than a year ago and is associated with work performed on the coker and other downstream units. This also increased feedstock cost and reduced clean product production. The Amorco wharf project, completed during the quarter at a cost of $26 million, offset a portion of the impact of the coker downtime by providing improved crude flexibility allowing increased utilization of other conversion units. The project contribution is estimated at $11 million for the quarter. The sulfur handling unit project at Anacortes was completed during the quarter and will allow for twice the refinery's historic sour crude throughput. Capital expenditures for the year are expected to remain at $900 million. As of today, the company has completed substantially all of the major income improvement projects associated with the 2007 capital program. "As we move into 2008, shareholders should continue to expect to see our discretionary capital program focused on reliability improvements and cost savings initiatives. Our successful execution of the 2007 capital program serves as the foundation for continued capital stewardship of free cash flow going forward," said Smith. Los Angeles Refinery Update Throughput at the refinery, including feedstocks, was 110 mbpd. Gross refining margin and direct operating expense for the quarter were $8.61 and $5.77 per barrel, respectively. "Throughput and product yields are currently ahead of our early expectations," said Smith. "While market fundamentals in the quarter of historically low crack spreads and rapidly rising crude cost impacted the refinery's profitability, we are pleased with our operational performance. As we move forward, we expect to realize additional benefits in exiting supply contracts, supply diversification and enhancing existing logistics," said Smith. Retail Operations Update Retail operating income during the quarter was $4 million including an impairment of $6 million for certain retail sites. Volume and margins for the newly acquired Shell and USA brand sites were in line with expectations. Additional USA brand expenses to improve operating standards, store enhancements and security are expected to impact earnings for the next three quarters. "We have high expectations for the USA brand, and to meet our company's long-term strategy around retail, we need to make additional investments. Our retail strategy is a selective process aimed at matching each refinery's production with its distribution needs. The addition of the acquired retail assets has allowed us to achieve a more optimum channel of trade balance," said Smith. Board Declares Quarterly Dividend Tesoro announced today that its Board of Directors has approved a regular quarterly cash dividend of $0.10 per share. The dividend is payable December 17th, 2007 to shareholders of record as of December 3rd, 2007. Public Invited to Listen to Analyst Conference Call via Internet At 9:30 a.m., CDT, Thursday, November 1st, 2007, Tesoro will broadcast, live, its conference call with analysts regarding third quarter 2007 results. Interested parties may listen to the live conference call over the Internet by logging on to Tesoro's Internet site at http://www.tsocorp.com. Tesoro Corporation, a Fortune 150 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 660,000 barrels per day. Tesoro's retail-marketing system includes over 900 branded retail stations, of which over 445 are company operated under the Tesoro(R) , Shell(R), Mirastar(R) and USA(R) Gasoline brands. This earnings release contains certain statements that are "forward-looking" statements concerning the market environment, and our expectations on about operating enhancements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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, ------------------ ------------------ 2007 2006 2007 2006 -------- -------- -------- -------- Revenues $ 5,902 $ 5,278 $ 15,382 $ 14,084 Costs and Expenses: Costs of sales and operating expenses 5,651 4,697 13,909 12,662 Selling, general and administrative expenses 47 41 189 126 Depreciation and amortization 97 63 255 183 Loss on asset disposals and impairments 8 31 13 43 -------- -------- -------- -------- Operating Income 99 446 1,016 1,070 Interest and Financing Costs (28) (19) (75) (60) Interest Income and Other 4 15 29 32 -------- -------- -------- -------- Earnings Before Income Taxes 75 442 970 1,042 Income Tax Provision 28 168 364 399 -------- -------- -------- -------- Net Earnings $ 47 $ 274 $ 606 $ 643 ======== ======== ======== ======== Net Earnings Per Share: Basic $ 0.35 $ 2.01 $ 4.47 $ 4.71 Diluted $ 0.34 $ 1.96 $ 4.35 $ 4.58 Weighted Average Common Shares: Basic 135.9 136.2 135.6 136.4 Diluted 139.6 139.8 139.4 140.3 ----------------------------- Note: Amounts include the results of operations of our Shell and USA Petroleum acquisitions since their acquisition dates in May 2007. Share and per share data for both periods presented reflect the effect of a two-for-one stock split effected in the form of a stock dividend which was distributed on May 29, 2007. TESORO CORPORATION SELECTED OPERATING SEGMENT DATA (Unaudited) (In millions) Three Months Nine Months Ended Ended September 30, September 30, ------------- ------------- 2007 2006 2007 2006 ------ ----- ------ ----- Operating Income (Loss) Refining $ 132 $ 474 $ 1,179 $1,192 Retail 4 3 (7) (21) ------ ----- ------ ----- Total Segment Operating Income 136 477 1,172 1,171 Corporate and Unallocated Costs (37) (31) (156) (101) ------ ----- ------ ----- Operating Income 99 446 1,016 1,070 Interest and Financing Costs (28) (19) (75) (60) Interest Income and Other 4 15 29 32 ------ ----- ------ ----- Earnings Before Income Taxes $ 75 $ 442 $ 970 $1,042 ====== ===== ====== ===== Depreciation and Amortization Refining $ 86 $ 56 $ 227 $ 164 Retail 8 4 19 12 Corporate 3 3 9 7 ------ ----- ------ ----- Depreciation and Amortization $ 97 $ 63 $ 255 $ 183 ====== ===== ====== ===== Capital Expenditures Refining $ 182 $ 99 $ 489 $ 242 Retail 1 3 3 4 Corporate 12 32 32 40 ------ ----- ------ ----- Capital Expenditures $ 195 $ 134 $ 524 $ 286 ====== ===== ====== ===== BALANCE SHEET DATA (Unaudited) (Dollars in millions) September 30, December 31, 2007 (a) 2006 ------------- -------------- Cash and Cash Equivalents $ 103 $ 986 Total Assets $ 7,995 $ 5,904 Total Debt $ 1,539 $ 1,046 Total Stockholders' Equity $ 3,122 $ 2,502 Total Debt to Capitalization Ratio 33% 29% --------------------------------------- (a)The purchase price of the Shell and USA assets, both acquired in May 2007, have been preliminarily allocated to the assets and liabilities acquired based upon their fair market values at the date of acquisition. The allocations remain subject to change. TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2007 2006 2007 2006 -------- -------- -------- ------- REFINING SEGMENT Total Refining Segment Throughput (thousand barrels per day) Heavy crude 331 274 289 269 Light crude 292 277 262 250 Other feedstocks 31 23 29 19 -------- -------- -------- ------- Total Throughput 654 574 580 538 ======== ======== ======== ======= Yield (thousand barrels per day) Gasoline and gasoline blendstocks 316 262 269 251 Jet fuel 88 75 76 70 Diesel fuel 137 139 127 123 Heavy oils, residual products, internally produced fuel and other 141 117 132 115 -------- -------- -------- ------- Total Yield 682 593 604 559 ======== ======== ======== ======= Refining Margin ($/throughput bbl) (b) Gross $ 9.09 $ 15.25 $ 14.49 $ 14.09 Manufacturing cost before depreciation and amortization $ 4.12 $ 3.32 $ 4.19 $ 3.47 Segment Operating Income ($ millions) Gross refining margin (after inventory changes) (c) $ 543 $ 786 $ 2,276 $ 2,039 Expenses Manufacturing costs 248 175 664 510 Other operating expenses 67 45 175 122 Selling, general and administrative 9 6 25 16 Depreciation and amortization (d) 86 56 227 164 Loss on asset disposals and impairments 1 30 6 35 -------- -------- -------- ------- Segment Operating Income $ 132 $ 474 $ 1,179 $ 1,192 ======== ======== ======== ======= Refined Product Sales (thousand barrels per day) (e) Gasoline and gasoline blendstocks 347 301 308 284 Jet fuel 101 96 93 92 Diesel fuel 145 136 133 131 Heavy oils, residual products and other 98 93 95 86 -------- -------- -------- ------- Total Refined Product Sales 691 626 629 593 ======== ======== ======== ======= Refined Product Sales Margin ($/barrel) (e) Average sales price $ 88.68 $ 87.33 $ 85.81 $ 83.94 Average costs of sales 80.65 74.95 72.99 71.82 -------- -------- -------- ------- Refined Product Sales Margin $ 8.03 $ 12.38 $ 12.82 $ 12.12 ======== ======== ======== ======= -------------------------- (b)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 before inventory changes by total refining throughput and may not be calculated similarly by other companies. Management uses manufacturing costs per barrel to evaluate the efficiency of refinery operations and allocate resources. 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. (c)Gross refining margin is calculated as revenues less costs of feedstocks, purchased refined products, transportation and distribution. Gross refining margin approximates total refining segment throughput times gross refining margin per barrel, adjusted for changes in refined product inventory due to selling a volume and mix of product that is different than actual volumes manufactured. The adjustment for changes in refined product inventory resulted in a decrease in gross refining margin of $5 million and $19 million for the three months ended September 30, 2007 and 2006, respectively, and $19 million and $32 million for the nine months ended September 30, 2007 and 2006, respectively. Gross refining margin also includes the effect of intersegment sales to the retail segment at prices which approximate market. (d)Includes manufacturing depreciation and amortization per throughput barrel of approximately $1.35 and $0.97 for the three months ended September 30, 2007 and 2006, respectively, and $1.35 and $1.03 for the nine months ended September 30, 2007 and 2006, respectively. (e)Sources of total refined product sales include products manufactured at the refineries and products purchased from third parties. Total refined product sales margin includes margins on sales of manufactured and purchased refined products and the effects of inventory changes. TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------ 2007 2006 2007 2006 --------- -------- -------- -------- Refining By Region California (Golden Eagle and Los Angeles) (f)(g) Throughput (thousand barrels per day) Heavy crude 232 160 177 153 Light crude 19 4 10 3 Other feedstocks 21 9 16 8 --------- -------- -------- -------- Total Throughput 272 173 203 164 ========= ======== ======== ======== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 156 97 109 96 Jet fuel 18 - 9 - Diesel fuel 61 54 49 46 Heavy oils, residual products, internally produced fuel and other 54 31 49 32 --------- -------- -------- -------- Total Yield 289 182 216 174 ========= ======== ======== ======== Refining Margin ($/throughput bbl) Gross $ 11.26 $ 19.65 $ 18.34 $ 19.98 Manufacturing cost before depreciation and amortization $ 6.15 $ 5.23 $ 6.99 $ 5.59 Pacific Northwest (Alaska & Washington) (f) Throughput (thousand barrels per day) Heavy crude 77 82 85 88 Light crude 103 103 90 81 Other feedstocks 5 8 9 6 --------- -------- -------- -------- Total Throughput 185 193 184 175 ========= ======== ======== ======== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 75 79 78 73 Jet fuel 37 36 33 31 Diesel fuel 31 37 33 30 Heavy oils, residual products, internally produced fuel and other 47 46 46 46 --------- -------- -------- -------- Total Yield 190 198 190 180 ========= ======== ======== ======== Refining Margin ($/throughput bbl) Gross $ 5.45 $ 12.15 $ 12.61 $ 11.94 Manufacturing cost before depreciation and amortization $ 2.84 $ 2.56 $ 2.82 $ 2.69 Mid-Pacific (Hawaii) Throughput (thousand barrels per day) Heavy crude 22 32 27 28 Light crude 59 57 57 59 --------- -------- -------- -------- Total Throughput 81 89 84 87 ========= ======== ======== ======== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 18 21 20 21 Jet fuel 23 27 24 28 Diesel fuel 14 14 15 14 Heavy oils, residual products, internally produced fuel and other 28 28 26 26 --------- -------- -------- -------- Total Yield 83 90 85 89 ========= ======== ======== ======== Refining Margin ($/throughput bbl) Gross $ 0.11 $ 9.31 $ 3.68 $ 6.67 Manufacturing cost before depreciation and amortization $ 2.12 $ 1.85 $ 2.02 $ 1.73 - ---------------------------- (f)The Company experienced reduced throughput and yield levels during scheduled maintenance turnarounds for the Los Angeles refinery during the 2007 second quarter, the Golden Eagle refinery during the 2007 and 2006 first quarters, the Utah refinery during the 2007 first quarter, and the Alaska refinery during the 2006 second quarter. (g)Volumes and margins for 2007 include amounts for the Los Angeles refinery since acquisition on May 10, 2007, averaged over the periods presented. Throughput and yield averaged over the 143 days of operation were 107,000 bpd and 116,000 bpd, respectively. TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2007 2006 2007 2006 -------- -------- -------- -------- Mid-Continent (North Dakota & Utah) (f) Throughput (thousand barrels per day) Light crude 111 113 105 107 Other feedstocks 5 6 4 5 -------- -------- -------- -------- Total Throughput 116 119 109 112 ======== ======== ======== ======== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 67 65 62 61 Jet fuel 10 12 10 11 Diesel fuel 31 34 30 33 Heavy oils, residual products, internally produced fuel and other 12 12 11 11 -------- -------- -------- -------- Total Yield 120 123 113 116 ======== ======== ======== ======== Refining Margin ($/throughput bbl) Gross $ 16.82 $ 17.84 $ 19.43 $ 14.69 Manufacturing cost before depreciation and amortization $ 2.81 $ 2.90 $ 2.98 $ 2.93 TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2007 2006 2007 2006 -------- -------- -------- ------- RETAIL SEGMENT Number of Stations (end of period) Company-operated 449 194 449 194 Branded jobber/dealer 453 262 453 262 -------- -------- -------- ------- Total Stations 902 456 902 456 ======== ======== ======== ======= Average Stations (during period) Company-operated 451 202 333 207 Branded jobber/dealer 446 260 359 260 -------- -------- -------- ------- Total Average Retail Stations 897 462 692 467 ======== ======== ======== ======= Fuel Sales (millions of gallons) Company-operated 311 66 555 189 Branded jobber/dealer 71 51 175 138 -------- -------- -------- ------- Total Fuel Sales 382 117 730 327 ======== ======== ======== ======= Fuel Margin ($/gallon) (h) $ 0.16 $ 0.22 $ 0.15 $ 0.16 Merchandise Sales ($ millions) $ 62 $ 38 $ 146 $ 108 Merchandise Margin ($ millions) $ 17 $ 11 $ 38 $ 29 Merchandise Margin % 27% 29% 26% 27% Segment Operating Income (Loss) ($ millions) Gross Margins Fuel (i) $ 61 $ 26 $ 110 $ 52 Merchandise and other non- fuel margin 23 11 48 31 -------- -------- -------- ------- Total Gross Margins 84 37 158 83 Expenses Operating expenses 61 22 122 67 Selling, general and administrative 4 7 17 19 Depreciation and amortization 8 4 19 12 Loss on asset disposals and impairments 7 1 7 6 -------- -------- -------- ------- Segment Operating Income (Loss) $ 4 $ 3 $ (7) $ (21) ======== ======== ======== ======= -------------------------------- (h)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 volume and may not be calculated similarly 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 accounting principles generally accepted in the United States of America. (i)Includes the effect of intersegment purchases from the refining segment at prices which approximate market. CONTACT: Tesoro Corporation, San Antonio Investors: Scott Phipps, 210-283-2882 Manager, Investor Relations or Media: Natalie Silva, 210-283-2729 Manager, Press Relations