by Katharine Schildt
While most oil companies continue to report less than desirable earnings results, one refiner recently reported improved refining margins, announcing a 51% increase from one year ago.
Based in San Antonio, Tesero Corp. (NYSE: TSO), one of the leading independent refiners and marketers of petroleum products, reported quarterly profit of $97 million, compared with a loss of $40 million just a year earlier.
Yes, that’s in spite of the precipitous fall in oil prices.
Other areas of the company’s operations saw an increase as well, including its operating income, which was $196 million higher than the fourth quarter of 2007. This was in part due to success in its Hawaii and California regions, as well as improved results in retail.
Increased crude recipients in Los Angeles were partly responsible for the success in Tesoro’s California region. And a 10% increase in heavy crude helped its Hawaiian region report favorable earnings.
“The actions we’ve been taking since late in 2007 have positioned the company to succeed even in this weak market environment,” said Bruce Smith, Tesoro’s Chairman, President and CEO.
“While falling commodity prices did benefit our wholesale and retail marketing channels, the capital and non-capital initiatives we implemented beginning in early 2008 have enhanced our ability to deliver substantial and sustainable improvements in our capture of the available margin, and I am pleased to see these successful efforts reflected in our fourth quarter results.”
Tesoro was able to increase crude flexibility and distillate production, which helped its margin realization. It took great pains to take full advantage of production, which led to a 4% increase in diesel and jet fuel compared to 2007’s fourth quarter.
Another important aspect of Tesoro’s accomplishments in such an otherwise dreary market was its ability to decrease costs. Direct manufacturing costs were $248 million in the fourth quarter compared to $300 million in the third quarter.
Capital spending for the entire year was $724 million, down significantly from the $932 million it spent in 2007. It says it expects its expenses for 2009 to be around $600 million, an even better improvement than it already reported.
“While the strength in first quarter West Coast margins has been a pleasant surprise, we plan to continue to follow our 2009 business plan which is based on industry benchmark margins that are lower than 2008, and our expectation that we will realize continued improvement in margin capture. Our program of non-capital objectives and benefits of our 2008 income capital spending is resilient and continues to provide the platform for our organic growth opportunities,” said Smith.
The company has obvious investment merit. To endure the fall in oil prices from $147 a barrel to under $40 – yet still improve margins, is significant. If anything, Tesoro represents a great way to keep your portfolio diversified with exposure to the energy sector.