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San Antonio Express-News (Texas): Tesoro reports record income in 2nd quarter

Creighton A. Welch
Published: Aug 08, 2007

Tesoro Corp.’s recently acquired refinery in Los Angeles helped the company set production and net income records in the second quarter.

The San Antonio-based refiner produced 612,000 barrels per day and reported net income of $443 million, or $3.17 per share, up 36 percent from last year’s second-quarter net income of $326 million, or $2.33 a share, the company reported Tuesday.

This was done, Chairman and CEO Bruce Smith noted, with only 51 days of operations at the Los Angeles refinery and “extensive maintenance” there.

“The second quarter would have been much stronger with another 40 days of contribution from Los Angeles and/or without the impact of two turnarounds at that facility,” Smith said in a Tuesday conference call with analysts. Tesoro announced in January that it was buying the 100,000-barrel-a-day refinery in Los Angeles from Shell Oil Co. Tesoro paid $1.76 billion for the refinery and 278 gas stations on the West Coast, and took over operations at the refinery in May.

Rising demand in a time of decreasing supply also boosted net income, said Lynn Westfall, senior vice president of external affairs and chief economist at Tesoro.

“Record high industry margins in the second quarter of 2007 had the origins in both demand and supply side,” Westfall said in the conference call. “Gasoline demand continued to grow at 1.1 percent versus 2006, and diesel demand increased by 2.2 percent.” Unplanned outages at U.S. refineries in the quarter cut 300,000 barrels per day from the supply chain, Westfall said.

Smith told analysts that Tesoro will continue to focus on organic growth at its existing refineries and also will continue to look for refinery options outside the United States.

“Organic growth can mean minor capacity expansions or significant capacity expansions,” said Roger Read, an analyst with Natexis Bleichroeder. “Historically, they have focused on small, quick payback investments.” Read said Tesoro now might start looking to broader projects that take more time and money.

For the second half of 2007, Smith predicts Tesoro’s earnings will exceed expectations, but he didn’t offer specific numbers.

“With the completion of several projects in the last half of the year and the synergies associated with the newly acquired assets, we’re positioned to deliver better earnings than analysts are currently forecasting,” Smith said.

Analysts are expecting Tesoro to earn $2.05 per share in the third quarter, 98 cents a share in the fourth quarter and $7.05 a share for the full year, according to a survey by Thomson Financial.

Tesoro operates seven refineries in the western U.S. Its stock ended the day up 2.84 percent at $48.17.

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