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Tesoro (NYSE:TSO)

Q4 2012 Earnings Call

February 07, 2013 8:30 am ET

Executives

Louie Rubiola - Director of Investor Relations

Gregory J. Goff - Chief Executive Officer, President and Director

G. Scott Spendlove - Chief Financial Officer and Senior Vice President

Daniel Robert Romasko - Executive Vice President of Operations

Analysts

Evan Calio - Morgan Stanley, Research Division

Robert A. Kessler - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Jeffrey A. Dietert - Simmons & Company International, Research Division

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Paul Sankey - Deutsche Bank AG, Research Division

Chi Chow - Macquarie Research

Faisel Khan - Citigroup Inc, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Quarter 4 2012 Tesoro Corporation Earnings Conference Call. My name is Julianne, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Louie Rubiola, Director, Investor Relations. Please proceed, sir.

Louie Rubiola

Thank you, Julianne. Good morning, everyone, and welcome to today's conference call to discuss our fourth quarter and full year 2012 earnings. Joining me today are: Greg Goff, President and CEO; Dan Romasko, Executive Vice President of Operations; and Scott Spendlove, Senior Vice President and CFO.

While we will not be referencing slides during the call, we do have a set of slides, which was filed with the SEC today. These slides, along with other financial disclosure and reconciliations for non-GAAP financial measures, should help you in analyzing our results and can be found on our website at tsocorp.com.

Please refer to the forward-looking statement in the earnings slides, which says statements made during this call that refer to management's expectations and/or future predictions are forward-looking statements, intended to be covered by the Safe Harbor provisions of the Securities Act, as there are many factors which could cause results to differ from our expectations. With that, I'll turn the call over to Greg.

Gregory J. Goff

Thanks, Louie. Good morning, everyone, and thanks for joining us on the call today. You have our earnings release and Scott will go over some of the details in a moment.

2012 was an outstanding year for Tesoro. With the market providing an attractive margin opportunity, we maintained high refinery utilization rates, reduced our operating costs and delivered on our EBITDA improvement targets despite a heavy turnaround schedule. We invested free cash flow into our high-return capital program, completing 3 of 5 announced major refinery projects. These projects deliver sustainable improvements in the business by broadening our exposure to advantaged crude oil and driving improvements in product yields.

We drove significant growth in Tesoro Logistics with the execution of our organic growth plan and 3 asset purchases for Tesoro. We increased refining and marketing integration with the addition of over 225 retail stations. The end result of all of this was the highest adjusted earnings and strongest balance sheet in the company's history.

In addition to executing our internal growth plan, we announced the acquisition of the Chevron Northwest Products System by Tesoro Logistics and the transformational acquisition of BP's Southern California refining and marketing business. These acquisitions are expected to add over $0.5 billion of recurring EBITDA plus at least $250 million of expected annual synergies.

And finally, we began returning cash to shareholders with an $0.80 per share annual dividend and share repurchases of $140 million to date under our existing $500 million stock buyback program. I'll come back and talk more about our full year results in just a minute. But first, let me comment on the fourth quarter.

During the quarter, we reported refinery utilization of 89%, the highest fourth quarter utilization since 2007. This allowed us to capture relatively strong crack spreads and advantaged discounts on crude oil supply. This was our first full quarter delivering unit trains of cost and quality advantaged Bakken crude oil to our Anacortes, Washington refinery. Volumes during the quarter averaged around 40,000 barrels per day. The facility is operating well and the project economic are in line with the expectations we've shared with you. We closed the sale of the $60 million Anacortes rail and loading facility to Tesoro Logistics for $180 million during the fourth quarter, marking the third asset sale to TLLP post-IPO. We brought the new vacuum tower online at our Wilmington, California refinery in the quarter, marking the delivery of the third of 5 announced major refinery projects.

Manufacturing costs in the quarter averaged $4.70 per barrel, up $0.28, reflecting higher natural gas prices and lower refinery throughput relative to the third quarter. Retail fuel sales volumes for the quarter were up 20% year-over-year, driven by the addition of the SUPERVALU and Thrifty sites earlier in the year. Retail marketing margins were up during the quarter both sequentially and year-over-year. The combined result is reflected in our adjusted fourth quarter earnings of $1.34 per diluted share and our year-end cash balance of over $1.6 billion. The strong fourth quarter was a fitting end to a very successful year.

When we met with you in December of 2011, we committed to drive between $150 million and $200 million in year-over-year EBITDA growth for 2012. I'm excited to report to you today that we exceeded our goal and can see the improvement in our results. Full year 2012 EBITDA, excluding the Hawaii impairment, was up more than $560 million over 2011. The additional EBITDA, driven by the delivery of our initiative and an improved margin environment, was partially offset by the impacts of heavy maintenance schedule we had planned for the year. The strong performance resulted in significant free cash flow that allows to fund our high-return capital program, repurchase $299 million in outstanding debt during the year, reinitiate and later grow our dividend and begin executing our share buyback program, with $100 million completed in the fourth quarter.

Recognizing the continued value opportunity in our shares, we've bought an additional $40 million so far in the first quarter of this year, bringing total purchases to $140 million or nearly 30% of the outstanding buyback program. As we look ahead to this year, in line with what we've shared with you in December, we have an aggressive plan for a focus on executing our high-return capital program, faithfully completing another heavy turnaround schedule, strengthening our West Coast business with the integration of the Carson acquisition and growing our logistics business with the integration of the Chevron Northwest Products System at TLLP.

We have an ambitious 2-year growth plan for Tesoro Logistics that we expect will drive annual EBITDA to over $260 million. That's a nearly fivefold increase in EBITDA since the IPO less than 2 years ago. And as market value for Tesoro Logistics continues to grow, that growth accrues to Tesoro at an accelerated pace as the general partnership distributions move into the high splits.

Our capital spending plans for 2013 remain at $530 million with turnaround spending of $310 million. We have 2 exciting major capital projects that are on schedule and expected to come online in the second quarter of this year. The first is a 5,000 barrel per day expansion of the diesel desulfurization unit at our Mandan refinery, which will allow us to meet the growing demand of this high-valued product in the region. We expect this project to generate over $10 million per year in additional EBITDA on an investment of about $35 million.

The second project is the first phase of the Salt Lake City Conversion Project. When fully complete, this project will allow us to double the throughput volume of cost-advantaged waxy crude oil, improve light product yield and expand throughput capacity at the refinery. We expect this project to generate about $100 million per year in additional EBITDA on an investment of about $180 million. We expect to realize about half the benefits of this project upon completion of the first phase in the second quarter.

The end result of this plan, we believe, will drive over $200 million of additional EBITDA this year, excluding Carson, as the value of our high-return capital program continues to materialize in our reported results. This success will allow us to execute a cash strategy focused on investing for growth and returning cash to shareholders.

With that, I'll turn the call over to Scott Spendlove, our CFO, for a more detailed discussion of our quarterly results and to provide guidance for the first quarter. Scott?

G. Scott Spendlove

Thanks, Greg. As we reported last night, our fourth quarter net income was $27 million or $0.19 per diluted share. Adjusted for special items, we're reporting an adjusted net income of $190 million or $1.34 per diluted share. Special items that were excluded from the quarterly results include after-tax of $154 million in charges related primarily to the decision to cease refining operations at the Hawaii refinery and $9 million related to transaction costs of our 2 announced acquisitions and other legal matters. That compares to an adjusted net loss in the fourth quarter last year of $120 million or $0.87 per diluted share.

Our corporate and unallocated costs for the quarter were $43 million before $9 million in corporate depreciation, $7 million in noncash stock-based compensation accruals and $10 million pretax of transaction costs that I just mentioned. Capital expenditures for the fourth quarter were $176 million and turnaround spending was $60 million. We ended the fourth quarter with a cash balance of just over $1.6 billion, a build of over $270 million from the third quarter. The gain reflects $433 million of EBITDA before the Hawaii charges, offset by cash, interest and tax payments of $185 million and capital and turnaround spending of $236 million.

Working capital during the quarter provided a source of cash of about $250 million. We remained undrawn on the corporate and TLLP revolvers with additional revolving credit capacity of about $1.22 billion and $500 million, respectively. We ended the quarter with total debt to total capitalization of 25% or 23%, excluding Tesoro Logistics' capitalization. This is in line with the end of the third quarter. And for the first time in our history as a refining and marketing company, our debt balance, net of cash, was negative, the result of our successful delevering program and strong operating cash flows over the past 2 years.

Before I turn to the first quarter outlook, I'd like to take a minute to discuss our interim financing facility we have in place for our upcoming acquisitions. For the Tesoro side, we recently amended our corporate revolver to provide for an expansion of total capacity from $1.85 billion to $3 billion and improved pricing and structural flexibility for the additional secured borrowings. In addition last week, we closed on a 3-year $500 million term loan credit facility, achieving a record-setting low yield. Both of these facilities become effective upon the close of the Carson transaction and both offer extremely attractive borrowing rates and repayment flexibility.

On the Tesoro Logistics side, we completed 2 highly successful equity offerings over the past 4 months, raising net proceeds of over $560 million and recently completed the expansion of its revolver from $300 million to $500 million. TLLP used about $170 million of that amount to fund the acquisition of the Anacortes rail facility in the fourth quarter, with the remainder expected to be used for the upcoming acquisition of the Chevron Northwest Products System. As I just mentioned, TLLP remains undrawn on its separate revolver with $500 million of available credit capacity. These efforts, along with the refinancing of $925 million of outstanding debt we executed in the third quarter of 2012, have put us in a position of significant financial strength and flexibility ahead of these transactions.

Turning to the first quarter guidance. This is typically a weak gasoline demand period both nationally and in PADD V with demand typically falling 1% to 4% sequentially from the already weak fourth quarter. Crack spreads quarter-to-date are down relative to the fourth quarter of last year. However, with the onset of seasonal refinery maintenance, we have seen margins strengthen significantly more recently. In the Mid-Continent, crack spreads remained relatively strong driven by a continued feedstock cost advantage. So far in the first quarter, the average discount of WTI to Brent remains about $18 per barrel, up relative to the first quarter of 2012.

I'll close with guidance for the first quarter modeling purposes. We estimate throughput to be, at thousands of barrels per day: 125 to 135 in the Pacific Northwest; 65 to 75 in the Mid-Pacific, 120 to 130 in the Mid-Con; and 255 to 265 in the California region. Manufacturing cost guidance for the first quarter in dollars per barrel is as follows: $4.85 in the Pacific Northwest; $3.35 in the Mid-Pacific; $3.45 in the Mid-Con; and $6.25 in the California region. Throughput and product yields in California and the Pacific Northwest will be impacted by planned turnaround activity at our Wilmington and Anacortes refineries. Our depreciation for refining is estimated at $98 million. Additional first quarter guidance items includes estimated corporate expense, including depreciation of $52 million and interest expense before interest income of $29 million. Our corporate expense guidance includes impact of additional transaction costs.

And with that, I'll turn the call back over to Greg for closing comments. Greg?

Gregory J. Goff

Thanks, Scott. We are pleased with our 2012 results and look forward to delivering our key strategic initiatives in 2013, including our significant organic growth plan, the integration of the transformational Carson acquisition, the integration of the Chevron Northwest Products System acquisition and the completion of another heavy turnaround schedule. Execution is definitely again our top priority. We are confident in our ability to deliver demonstrated performance from our talented and engaged employees.

And with that, Dan, Scott and I will now take your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Evan Calio, Morgan Stanley.

Evan Calio - Morgan Stanley, Research Division

I was wondering if you could just give us an update, kind of where you are on the Carson FTC review process. Have you substantially complied with the second information request? And are you still on track to hear something by midyear? I guess, I'm looking for any incremental change since you updated us in December. And I have a second question.

Gregory J. Goff

Yes. It's a good question. In January, the request for information from the second request were completed, and we are in the final stages of processing that with the FTC and continue to work with the FTC to complete the transaction. And so at this point in time, we don't see anything that would change from our schedule that we've said all along.

Evan Calio - Morgan Stanley, Research Division

Okay. And maybe I can switch to a question on advantaged runs to the West Coast. I mean, is Tesoro in any of these discussions with either the 2 potential pipeline conversion projects into California and maybe particularly the Southern Trails conversion? And how much Permian, assuming it's light and available, could you run at Wilmington and Carson? I think you mentioned before it would be less at Wilmington and much of the capacity for Carson. But if you could kind of refresh me here, I'd appreciate it.

Gregory J. Goff

Evan, we are actively looking at numerous opportunities to supply the West Coast with crude oil from Canada throughout the central portion of the United States. And so we have that work in progress, and we'll continue to develop that as we proceed. I think we've said in the past that we are taking a small amount, about 5,000 barrels a day of Bakken crude oil, to our refinery in Martinez, California. And like you said, at the analyst meeting, we mentioned that we have a good appetite for the crudes from the Mid-Continent at our Golden Eagle refinery in Martinez, as well as we will have at the future Carson refinery when that happens. Limited opportunity at the Wilmington refinery.

Evan Calio - Morgan Stanley, Research Division

Is there -- and maybe one last follow-up if I could. Is there any -- I know you'd mentioned that you're looking and you're studying a lot of different rail solution potentials into the West Coast, maybe even rail to waterborne into California. Any kind of time line on when we may hear the results of your analysis?

Gregory J. Goff

I mean, we're as anxious to do that as your question is that we will -- we are actively looking at that and we will -- once we get the things developed, they are somewhere in more advanced stages, we'll be glad to share that with you. But they're just a lot of activity out there. There's a lot of opportunity.

Operator

Our next question comes from the line of Robert Kessler; Tudor, Pickering, Holt & Co.

Robert A. Kessler - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

A couple of questions for you. One is just a follow-up to that last discussion on the rail options. I know it's early days. But can I ask for confirmation? As you said, I think, at the Analyst Day that you will not use the Anacortes, that rail unloading facility, as the source for the rail to marine option, and it would be another site that you would have to, I guess, presumably acquire a partner on in order to move the rail to ships. Is that still accurate?

Gregory J. Goff

Absolutely. The advantage to take the Bakken crude oil to Anacortes is extremely attractive. And we are in the process of ramping up from the 40,000 a day that we said to the 50,000 barrels a day post our turnaround at Anacortes. And so we will pursue other opportunities.

Robert A. Kessler - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay. Can you give me some more color on how you see the Canadian heavy oil by rail option unfolding? It would clearly be -- it seemed to be advantageous to your portfolio to move some distressed price Albertan heavy oil down to California, presumably on one of these rail to marine options as well. What are the limiting factors as you see it in that space? How do you in particular get on the rail system in Canada? Is there any kind of limit on the actual lines as opposed to just building the loading and unloading facilities?

Gregory J. Goff

Yes. Robert, there are -- this is one of the many opportunities that we're looking at. So it's -- for commercial reasons, it's just something that we're not going to talk about. But there are numerous opportunities that we're pursuing.

Robert A. Kessler - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay. And then finally, for me, as someone who's busy displacing ANS with Bakken crude, I was curious on your thoughts of possibility of ANS crude ultimately getting backed out into the international market, that is to it export from the U.S. as one of the allowed exemptions on the general export ban? Is that going to happen in your view? And if so, when?

Gregory J. Goff

I think it's just dependent on what happens with the amount of crude that ultimately makes it to the West Coast. I don't -- I'm not privy to what other companies are trying to do with the amount of volumes. We only know what we're trying to do. So it could have an impact on ANS crude though with the potential movement of crudes to the West Coast.

Robert A. Kessler - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

How much ANS do you run in your portfolio today, post the backing out of the Anacortes volumes?

Gregory J. Goff

Today, after what with the changes that we've made, we run limited amounts of ANS crude in our portfolio.

Operator

Our next question comes from the line of Jeff Dietert, Simmons & Company.

Jeffrey A. Dietert - Simmons & Company International, Research Division

You're -- for the fourth quarter, it looked like your throughput in California was a little lower than you had anticipated at the time of the third quarter conference call. I was hoping you could share a little bit of information about the California throughputs, the impact of the Wilmington Yield Improvement implementation, talk a little bit about how that yield improvement project is operating so far.

Gregory J. Goff

Be glad to. Let me let Dan address your question, Jeff.

Daniel Robert Romasko

Yes. Good question, Jeff. The throughput impact on the West Coast was related really to 2 things. One was the Wilmington refinery downtime that we had planned to tie in the vacuum tower extended a little bit longer than we had thought, coupled with some unplanned work in Martinez. Specific to the Wilmington vacuum tower installation, that did come online. The current view of the yield impact to that is quite favorable. Although we've not completed the full post audit on that until the crude slate and runs are all stabilized. That will take us probably another quarter. But so far, it looks quite good.

Jeffrey A. Dietert - Simmons & Company International, Research Division

So I see from your guidance for California that you've got expectations for a return to very healthy throughput and the Wilmington project should further enhance margin capture on top of some of the improvements you've been able to achieve over the last couple of years. Am I looking at that correctly?

Daniel Robert Romasko

You are looking at that correctly. However, in the first quarter, we do have some conversion unit downtime and the turnaround planned for Wilmington. So while the crude rate is going to be full, we won't see the full gross margin capture that we would expect to see once we complete the turnaround activity. That will be a full view second quarter impact.

Operator

Our next question comes from the line of Doug Leggate, Bank of America Merrill Lynch.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

I've got a couple on the cost down to California, Greg, if you don't mind. You guys have talked about -- obviously, there's been a lot of questions about this. But you've talked previously about maybe barging from the upper West Coast down into California. I'm just wondering if you can give us an update as to how you're thinking about that and what the cost of that might look like. And I've got a follow-up, please.

Gregory J. Goff

Yes. Our view of being able to source crude oil up into the Pacific Northwest and then move it by water down to Southern California is equally attractive to taking it by rail all the way into California.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

In terms of viability, is that something that you're actively looking on in terms of maybe expanding the rail facility in Anacortes, Greg? Or is that too far down the line to talk about?

Gregory J. Goff

At this stage, Doug, we're not actively looking to expand Anacortes. We are pursuing other opportunities.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Got it. My follow-up is really on Hawaii. Obviously, you've announced your intentions there. But I gather the state senator has voiced some concerns. Can you just give us a quick update as to how you see that processes? Do you see any obstacles to being able to get that done as per plan? Or you're just expecting reaffirmation of your expectations for the working capital plays [ph]?

Gregory J. Goff

Right. First, we fully intend to deliver the working capital that we stated before in the range of $300 million to $350 million in 2013. That will absolutely happen. Second, we've worked very, very closely with all the government agencies in that in the state of Hawaii and also their federal representatives in Washington, D.C. with our plans once we announced our intention to cease refinery operations in April. And that is progressing as we still see. And because we can meet all of the supply commitments in that we see that moving along without any disruptions. So we are really on track to deliver what we said we would do. I guess, maybe just to make sure one other point is clear is that we are still intending to try to mark all of those assets in an active sales process on the assets in Hawaii.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

If maybe I could have just one final one just on the Bakken wellhead pricing. Clearly, there's been a lot of moving parts there relative to Clearbrook. I don't know if you or Scott will want to take this one. But can you just give us an idea how sustainable or how common a fix you think is now in place in terms of rail capacity? And I'll leave it at that.

Gregory J. Goff

Yes, it's a good question, Doug. Let me ask Dan to comment on that specific question.

Daniel Robert Romasko

Yes. So I'm probably going to comment more about where our long-term view of Bakken pricing is and stay a little bit away from a Clearbrook pricing because it's becoming less of a material piece of the pie. The majority of the volume that's exporting out of the state is now coming out of rail movement. So our long-term view remains consistent that Bakken will price at a coastal crude alternative less transportation. So if that's the Gulf Coast, then it's LLS less the $14 to $15 a barrel of transportation cost. If that's the East Coast, it's Brent less something probably close to $15 to $17. And if it goes West, it will eventually be ANS asphalt type crude, so less $12 to $14. Between now and that eventual time, there will be volatility in the market that's pretty difficult to predict.

Operator

Our next question comes from the line of Paul Cheng, Barclays.

Paul Y. Cheng - Barclays Capital, Research Division

A number of questions, hopefully quick. Dan, in Wilmington and Anacortes, can you tell us at what conversion unit is going to be in turnaround and for how long and how that's going to impact the product yield?

Daniel Robert Romasko

Wilmington's downtime is primarily FCC-related and will be back online, we expect, towards the middle of this month. And Anacortes is also likely to be a -- Anacortes is also FCC and will occur towards the end of the quarter. As far as yields, I think the best way to assess that is take a look at our historical turnaround periods from a capture rate impact.

Paul Y. Cheng - Barclays Capital, Research Division

In Anacortes, when does it going to start the turnaround for the FCC? Are you saying that it's going to come back by the end of the quarter or it's going to start at the end of the quarter?

Daniel Robert Romasko

On Wilmington or Anacortes?

Paul Y. Cheng - Barclays Capital, Research Division

You said Wilmington will come back by mid-February. So Anacortes, you're saying that it will come back by the end of the quarter. Or does it actually start at the end of the quarter?

Daniel Robert Romasko

It will begin in the -- at towards the end of the quarter, and we'll provide guidance on second quarter impacts at a later date.

Paul Y. Cheng - Barclays Capital, Research Division

Okay. So yes, Anacortes is mainly a second quarter event then?

Gregory J. Goff

A little bit both, Paul, and kind of split between the 2.

Paul Y. Cheng - Barclays Capital, Research Division

Okay. On the -- Greg or Dan, I believe that currently, you have a nice base. You're getting the Canadian sweet crude at Trans Mountain, and then barge it down into Anacortes. Do you have the option -- are you going to start shifting the Canadian sweet -- to ship the Canadian heavy crude at Trans Mountain and then barge it down into California? And if that is a possibility, given the rail-wide WCS discount, is that profitable for you or more profitable for you to do it at this point?

Gregory J. Goff

Let me just clarify one thing, Paul. The Trans Mountain Pipeline kind of has 2 legs, 1 that goes into the Vancouver area, and then 1 that goes right actually into the refineries in the Pacific Northwest. So our supply today that you mentioned is pipeline supplied right into the refinery that way. So that's one thing. Secondly, the pipeline has been in proration for some period of time due to limitations on the space and then the demand. And so there, it's virtually impossible to ship any more crude than we have today. And our advantages...

Paul Y. Cheng - Barclays Capital, Research Division

No, Greg, I'm not saying that ship more crude. I'm just saying that we're pacing one type of crude, we have the WCS -- given that the WCS discount is much wider, can that be done? Or do you have the option? You can do it or that the shipment is -- that the contract is really just for the light sweet?

Gregory J. Goff

Yes. Paul, you need to protect your space that you have in the pipeline, so you can get a rate of supply of crude all the time. So that's not something that we would pursue at this point in time.

Paul Y. Cheng - Barclays Capital, Research Division

I see. Okay. On the -- maybe then for Scott. Scott, do you have some kind of an EBITDA earning contribution from the unit train operation in the fourth quarter, as well as in the Mandan expansion, given that both of them have the full quarter of their operation?

Daniel Robert Romasko

Let me take that one. I'll do Anacortes because we publicly disclosed some of the information on it already. Anacortes' Bakken contribution is probably -- probably we expect to be around 40,000 barrels per day. It was close $11 a barrel versus our alternatives or $40 million. Some of that didn't show up clean, clearly, because of the Canadian light sweet WTI differential that shrunk on a quarter-on-quarter basis by about $2.50 for a similar volume as the Bakken. So if you stack those 2 together, you still have about $8.50 a barrel advantage for the combined Canadian light sweet Bakken on a kind of a quarter-by-quarter basis, third to fourth. Then if you spread that across the full 160,000 barrels of volume that we put through the Pacific Northwest, you get a crude advantage of about $2 a barrel, which compares to the $1 improvement that you'll see in our disclosed information. The difference between the remainder is inventory and yield impacts.

Paul Y. Cheng - Barclays Capital, Research Division

Great. How about Mandan?

Daniel Robert Romasko

The Mandan impact, I think you can detract just based by looking at the disclosure. It's 100% Bakken crude.

Gregory J. Goff

It ran full, Paul, so it ran 70,000 barrels a day.

Paul Y. Cheng - Barclays Capital, Research Division

So Dan, should we assume that the Salt Lake City profitability is similar to Mandan? So whatever you report in Mid-Con, we can just use that as a proxy?

Gregory J. Goff

Pretty good. Yes, that's a good way to look at it.

Paul Y. Cheng - Barclays Capital, Research Division

All right. And then Scott, do you have working capital at the end of the year? And also on the Logistics side, what's the working capital?

G. Scott Spendlove

Paul, total working capital at the end of the year was $1.755 billion, including cash. It was $119 million, excluding cash. And we don't really have working capital at the Logistics level. And we haven't really reported that yet either, so...

Paul Y. Cheng - Barclays Capital, Research Division

Okay. A final question, Greg. On the dividend payout, it's great that you guys raised it the second time in such short period. But I want to understand that when management or the board, looking at the payout, is there any kind of formal target in terms of the payout ratio at the bottom of the cycle of earning power or missed [ph] cycle, whatever you define it? I'm trying to understand it. I mean, maybe we are being too optimistic. But it looks like you could easily, even at the bottom of the cycle, to support a $2 plus dividend. So I'm trying to understand how it's being considered within the company?

Gregory J. Goff

Well, as you're aware, Paul, we just started paying a dividend in August of 2012. And it's been our objective to have a competitive dividend that looks at yield and payout ratios. And we will manage our dividend over time as we progress through time to maintain that approach. So that's kind of where we stand right now.

Paul Y. Cheng - Barclays Capital, Research Division

So do you have a formal payout ratio target internally? Or that's still, you say, a work in progress at this point?

Gregory J. Goff

No. Like I said, we look to be very competitive with our peer companies.

Operator

Our next question comes from the line of Roger Read, Wells Fargo.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

I guess, a couple of questions. First off, with the exception of California, pretty good operating cost management in the fourth quarter. Can you kind of walk us through how that outperformance came about? And is that something that's sustainable? Were there some one-time issue in the fourth quarter or things that didn't happen in the fourth quarter that maybe will recur at other quarters? Just curious how that happened and if we should think about outperformance going forward as something you can achieve.

Daniel Robert Romasko

Yes, let me take that, Roger. I think our performance in the fourth quarter was a bit better than we planned obviously in the Mid-Continent. We wouldn't extrapolate that for future quarters' performance. The guidance -- Louie has provided, I believe, guidance on operating costs, and they're consistent with our expectations going forward. California's impact was related really to a couple of factors. Nat gas price came in a little bit higher than we thought when we provided guidance. And then we had the extended downtime for the L.A. back tower tie-in and some reliability work in Martinez.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Okay. And then just since a lot of the other companies that have come through have talked about it, can you give us an idea of what you're doing on the export front? Maybe just sort of anything to do about expanding capacity to export, whether from -- wherever along the West Coast or anything else that you've got that you can update us on there.

Gregory J. Goff

Roger, if you look at the export activity off of the West Coast, it continues to stay pretty consistent, where it has somewhere around total between gasoline and diesel of about 120,000 barrels a day. And we are -- as we've said in the past, we actively participate in that market because we find good value to ship to certain customers that we have on the west coast of South America. It looks sustainable from the levels that we've seen in the past.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Okay. So no expansion plans or anything there?

Gregory J. Goff

We think that's pretty much in that 120,000 barrel a day range because it's just the market that we're attracting on the west coast of South America and Mexico.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Okay. And then just last question, kind of following up on Paul's question there about the dividend and share repo. Can you give us an idea of maybe how you think about, within the overall return in capital to shareholders, how you evaluate the dividend versus the share repo? Obviously, you've got the pending acquisition here. Is it going to have some impact on the balance sheet? But also by year end, the closure of Hawaii should free up working capital. I'm just wondering how should we think about maybe paying down the term loan versus either a higher dividend or continued share repos, just maybe how all those moving parts come together.

Gregory J. Goff

Yes. Let me see if I can kind of succinctly answer your question. First, it's our intent to continue to find opportunities that allow us to invest in the business to increase our earnings capability like we've been doing. So that is a priority. The second, as I responded to Paul Cheng's question, is that it's our intention to maintain a competitive dividend based on the 2 factors that I mentioned. Third, we will continue to look on our forward look about our excess cash and continue to provide ways to return excess cash to shareholders as we progress through it. The fourth thing is, right now, we are preparing -- we've done a lot of work to prepare to go into the transactions that we're doing right now. And our intention was to go into those from a position of financial strength and to come out of them from a position of financial strength. And so our plans to pay back term loans and all that, that you had talked has been incorporated in there as we see the opportunity to get back into a similar total debt to total capitalization position shortly after we complete the transactions.

Operator

Your next question comes from the line of Paul Sankey, Deutsche Bank.

Paul Sankey - Deutsche Bank AG, Research Division

A [indiscernible] question. I think you've kind of been talking about it in bits and pieces. But I was wondering with regards to Hawaii, that's effectively cleaned out of the portfolio, I guess, in terms of financial costs and ongoing costs. And then to broaden the idea of where this actually goes from here, I guess, obviously we're waiting for the FTC, yay or nay. Once we've cleaned out Hawaii, assuming you're going to confirm it's more or less out of the portfolio from a financial standpoint and you're assuming that you've got California in, how will you then look at the portfolio going forward in terms of how you feel about whether the challenge that the people seem to be strongly implying is simply to try and get cheaper and cheaper crudes or more and more cheap crude into your coastal refineries? Or is there some other shape to the portfolio that you feel that you'd like to pursue?

Gregory J. Goff

Yes. I think, first, regarding the portfolio, the steps that we've taken that you mentioned around Hawaii and the opportunity in California to really create what we said is a world-class facility in Southern California are significant improvements to our overall portfolio. So we're excited about those 2 steps and -- but we can't underestimate the demands on our company to deliver the synergies because we talked about $0.25 billion of synergies. And so there is a lot of work that we will be pursuing with that combined facility in Southern California. But taken all that in its entirety, then we then like our portfolio. We like how we're positioned. And to touch upon what you said, we are very, very actively looking at ways to improve our crude supply cost. We've been doing that for 2 years, and we are -- we just -- that's a high priority of the company. And we see a lot of actually exciting opportunities that we're trying to develop and deliver with a sense of urgency to capture the value there. The final thing to your question, Paul, is that we will continue to look in our geographic area at opportunities that add value to the company and would create value for our shareholders. And if we see those opportunities that would fit in that offers some of the same attributes that our current portfolio does, we would like to pursue those.

Paul Sankey - Deutsche Bank AG, Research Division

Yes. I guess, what you're saying is that more -- I mean, everyone would love it, I guess, more Mid-Con refining at the right price. I assume you're not interested in East Coast, Gulf Coast or international.

Gregory J. Goff

I think we've been pretty clear that our focus is absolutely in our geographic footprint that the markets that you've said, we consider out of our focus area.

Paul Sankey - Deutsche Bank AG, Research Division

Yes. Just changing to a different subject. There was a cap and trade auction in California in November that was actually deemed a success. Were you involved in that? Can you talk a bit about your perspective on that?

Gregory J. Goff

Yes. I think there's been a subsequent auction to that also or it's coming up. I don't recall exactly, but we -- yes, we did participate in the auction and, we believe, position ourselves extremely well to comply with our requirements for the cap and trade.

Paul Sankey - Deutsche Bank AG, Research Division

Yes. The second auction is actually on February 19.

Gregory J. Goff

Yes, I knew it was coming up.

Paul Sankey - Deutsche Bank AG, Research Division

Can you talk a bit more about that? Because I guess, we're a bit unfamiliar with -- you've had to, I guess, buy allowances for -- to cover your emissions?

Gregory J. Goff

Yes. The requirements in the early stages of cap and trade for our system aren't that great, like we've said all along. And so we've gone out over a period of time and inquired -- acquired emissions to meet the requirements to comply. But it's not -- we're not talking anything of material consequence to the company.

Paul Sankey - Deutsche Bank AG, Research Division

Yes. I guess, that's clear from your results insofar as there's nothing financially that would affect your costs.

Gregory J. Goff

Right.

Paul Sankey - Deutsche Bank AG, Research Division

Is there going to be? I mean, I'm still unclear because it seems to be the feeling as -- what with the California economy down and everything else, this may never turn out to be the cost as some people fear?

Gregory J. Goff

I'm sorry, I couldn't -- I lost you.

Paul Sankey - Deutsche Bank AG, Research Division

It seems that with the downturn in the California economy and lower emissions anyway, this may never become a risk [ph] cost. My question is, is the cost going to potentially get a lot worse? Or how do you see the outlook for that cap and trade?

Gregory J. Goff

Yes. 2 things. One, I mean, the California economy is actually starting to turn around a little bit, and we'll see what happens as far as gasoline demand as the improvements in the economy. But I think we've been pretty clear over time that as we look at the requirements to comply with stationary source emissions, that they're not that significant. They do grow over time as you get out to the end of this decade, but it's something that we felt was quite manageable as far as when you look at the requirements of AB32. The second thing is and probably something that's very important, one of the really big drivers that helps us capture value with the combining our Wilmington refinery with the Carson refinery is that we reduce CO2 emissions, as well as really NOx and SOx substantially, and that's a big benefit.

Paul Sankey - Deutsche Bank AG, Research Division

Yes, I was wondering how long it was going to be before you mention that, Greg. So that's the 30% reduction that you expect to the CO2 emissions as a result of the combination, right?

Gregory J. Goff

30% reductions in what our Wilmington refinery produces today, which is about 0.5 million tons of CO2 a year.

Operator

Our next question comes from the line of Chi Chow, Macquarie Capital.

Chi Chow - Macquarie Research

So just to clarify on the turnarounds, Dan. So Anacortes, is it just a cat cracker turnaround coming up at the end of quarter? Or is it more broader than that? And secondarily, how does that impact your Bakken crude deliveries into the plant?

Daniel Robert Romasko

Primarily a cat cracker turnaround does not directly impact the Bakken deliveries into the plant. Obviously, if we've got decreased runs, which we've got from PNW, that it will run a bit fewer barrels of Bakken.

Chi Chow - Macquarie Research

Okay. But you assume that the plan is still to be around 50,000 a day, going forward here on the rail deliveries.

Daniel Robert Romasko

Post turnaround.

Gregory J. Goff

Yes, post turnaround.

Chi Chow - Macquarie Research

Okay, great. Greg, so you mentioned that you're bringing down about 5,000 barrels a day of Bakken into Golden Eagle. Are there limitations on ramping that up on the terminal capacity? And are you moving that on, I guess, just third-party manifest trail?

Gregory J. Goff

Yes. It's moved manifest on the railroads, single manifest to get the crude into the refinery. And it's just that we're in the initial stages of working all the logistical system in that to deliver it directly into the refinery, as well as we pursue other options there, Chi.

Chi Chow - Macquarie Research

Is there an upside capacity on the rail that you can actually bring these crudes in right now?

Gregory J. Goff

Well, that's what we're working. Those are just the numerous options that we're working for all of West Coast supply.

Chi Chow - Macquarie Research

Okay, great. And then another question, just Hawaii. Is there an opportunity to supply that market once the refinery is shut from your West Coast plants. Or are there also limitations based on either economics or Jones Act limitations?

Gregory J. Goff

I think if you look at Hawaii, you will see that probably the opportunity to supply Hawaii comes from Asia, when you look at values and where you can move products on that.

Operator

Our next question comes from the line of Faisel Khan, Citi.

Faisel Khan - Citigroup Inc, Research Division

Faisel from Citi. On the -- I got the answer to the first question on the BP, Carson City exchange. What was the last time you guys had a request from the FTC on the transaction?

Gregory J. Goff

Well, as part of that process, Faisel, is it's ongoing. It's ongoing continually. So that said, the way the process works there are involvement between ourselves and the FTC continually.

Faisel Khan - Citigroup Inc, Research Division

Okay, fair enough. And then just on the financing that you have in place right now. I mean, I guess, if things kind of stay where they're at in terms of the Brent, WTI spread and even some of these ANS discounts and heavy light spreads, I mean, in theory, could you be able to -- would you be able to pay for the transaction in all cash by the end of the year? Would even need the financing that you put in place for the transaction?

Gregory J. Goff

No, it's -- our plans are to provide the flexibility that Scott alluded to when he talked earlier that we have the flexibility to finance the transaction the way we intend to and then as, if conditions prevail, like you mentioned, then they would just allow us to pay back the financing faster.

Faisel Khan - Citigroup Inc, Research Division

Okay. And then as you guys have railed more Bakken into the Anacortes and the West Coast, it looks like ANS has started to trade at a wider discount to Brent. I'm wondering if you think that there's a direct correlation there between the amount of Bakken being moved into the West Coast and where that discount has been headed.

Daniel Robert Romasko

Well, we think that there certainly should be an impact -- this is Dan, Faisel. But I think there's also an impact associated with the [indiscernible] Chevron downtime. So I think it's a combination of those 2 factors there. Long term obviously, as more Mid-Con crudes hit the West Coast, then ANS pricing comes back to a more historic discount to the sweet alternatives.

Faisel Khan - Citigroup Inc, Research Division

Okay, understood. And then you guys talked about how you backed out a lot of -- how much ANS have you backed out of your refineries to date versus last year?

Daniel Robert Romasko

Well, I think the simplest way to think through that is if you assume the 40,000 barrels a day of Bakken that we brought into the Anacortes, less -- I don't know, maybe 5,000 [ph] or a bit more of reductions in Canadian light coming down. That net number backed out either Alaska North Slope or foreign crudes into Anacortes. Whether it's ANS or foreign depends on the pricing of the crude during a given month.

Faisel Khan - Citigroup Inc, Research Division

And then were you guys chartering your own Jones Act tankers to move that crude from Alaska to your West Coast system?

Daniel Robert Romasko

I -- normally, yes.

Faisel Khan - Citigroup Inc, Research Division

So I take it as you back out Bakken, you can employ those Jones Act tankers to do something different?

Daniel Robert Romasko

That's correct.

Faisel Khan - Citigroup Inc, Research Division

Okay, understood. Just one last question, I mean, just going back to the dividend. As you guys ramp up your cash flows from TLLP, the GP and LP distributions, is the right way to think about the dividend is that as you -- as those distributions grow, then in theory, your dividends would grow along with that distributable cash flow from the MLP?

Gregory J. Goff

Faisel, we just -- it's a consolidated business. And so with the cash flow back into the company is just part of the overall pool of how we manage. And then our focus on the dividend for Tesoro is what I stated earlier regarding the payout ratio and the yields.

Operator

Sir, you have no further questions at this time. [Operator Instructions] You have no questions at this time. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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