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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

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

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

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

Evan Calio - Morgan Stanley, Research Division

Edward Westlake - Crédit Suisse AG, Research Division

Sam Margolin - Dahlman Rose & Company, LLC, Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Paul Sankey - Deutsche Bank AG, Research Division

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

Chi Chow - Macquarie Research

Tesoro (TSO) Q3 2012 Earnings Call November 1, 2012 8:30 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Tesoro Corporation's Earnings Conference Call. My name is Deanna, and I'll be the operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Mr. Louie Rubiola, Director, Investor Relations. Please go ahead.

Louie Rubiola

Thank you, Deanna. Good morning, everyone, and welcome to today's conference call to discuss our third quarter 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 thank you for joining us on the call today. You have our earnings release, and Scott will go over some of the details of the results in a moment, but I'm going to start with an overview of some recent highlights.

During the third quarter, we again increased refinery utilization rates, running total throughput of 626,000 barrels per day or 93% of total capacity, the highest level in 4 years. This allowed us to capture strong crack spreads and advantaged crude discounts on our supply. We continued to reduce operating expense, with manufacturing costs of $4.42 per barrel, the lowest since 2007. The combined result is reflected in our adjusted third quarter earnings of $2.05 per diluted share and our quarter end cash balance of nearly $1.4 billion.

Beyond what you would expect from stock-based compensation expenses, our third quarter results were reduced by about $65 million, as a result of crude oil delivery disruptions and maintenance activities in our California region, as well as increases in our incentive-based compensation accruals.

In addition to the strong operating results, we also made significant progress on several strategic fronts during the quarter. This was our first quarter running the expanded capacity of 68,000 barrels per day at our North Dakota refinery. The additional EBITDA generated during the quarter alone, all but covered the $35 million we spent on the project. And we began receiving unit trains of price- and quality-advantaged Bakken crude oil at our Anacortes Washington refinery in September.

Our rail unloading facility, with permitted capacity of 50,000 barrels per day, is operating well and in line with our expectations. We expect to deliver about 40,000 barrels per day of Bakken crude oil to Anacortes in the fourth quarter. We expect the new Bakken tower at our Wilmington, California refinery to be operational this month, shifting just under 1 percentage point yield from low-value petroleum coke to light-product production.

And finally, upon receiving all required permits in September, we broke ground on the Salt Lake City Conversion Project, allowing the refinery to run over 20,000 barrels per day of price-advantaged waxy crude oil, increased throughput capacity by 4,000 barrels per day and improve clean product yields. These high-return-capital projects allow us to broaden our exposure to advantaged crude oil and drive improvements in product yields. The end result is an enhanced competitive position for our refineries and significant growth in earnings and cash flow.

Beyond these growth capital projects, we continue to make progress on other important strategic fronts. In September, we completed the sale of the Long Beach marine terminal and pipeline assets for $210 million, the second post-IPO asset sale, to Tesoro Logistics. TLLP funded the purchase of these assets from Tesoro, with the proceeds of a $350 million debt offering, its first debt offering since the IPO. The notes priced at 5.875%, the lowest yield ever for a first time issuer at that credit rating level. A portion of the proceeds were used to pay off borrowing under TLLP's revolving credit facility, with the remainder paid to Tesoro for the Long Beach logistics assets.

In October, Tesoro Logistics executed a secondary equity offering, selling over 4.2 million units in an oversubscribed offering, netting the company more than $170 million. We continue to expect the sale of the Anacortes Washington rail unloading facility to Tesoro Logistics to occur in the fourth quarter.

And finally, in August, we announced the acquisition of BP's integrated Southern California refining and marketing business, which, when combined with Tesoro's Southern California system, creates a world-scale refining complex with a highly integrated marketing and logistics system. We expect the transaction to generate annual recurring synergies of about $250 million, driven by improvements in yields, reduced manufacturing and distribution costs, enhanced utilization of extensive logistics assets and reduced stationary source air emissions; all of this for an attractive purchase price resulting in immediate earnings accretion and significant value creation to Tesoro's shareholders.

The solid operating results and success on multiple strategic fronts allowed us to generate significant cash flow and further strengthen our balance sheet during the quarter. As an offset to the new Tesoro Logistics steps, during the quarter, we redeemed $299 million of Tesoro's senior notes that were otherwise due November 1 this year. We also took advantage of attractive debt markets during the quarter by refinancing $925 million of outstanding debt, extending maturities by an average of 4 years and reducing average interest expense by more than a full percentage point or about $16 million of cash interest savings annually.

In all, we reduced debt by more than $100 million in the quarter and with strong EBITDA and retained earnings growth, reduced our total debt to about 25% of total capitalization. Debt, net of cash, at the end of the third quarter was just 4% of total capitalization.

And finally, showing our confidence in the sustainability of the improvements we are driving in the business, we raised our quarterly dividend by 25% to $0.15 per share. The increased dividend and the $500 million share repurchase program we announced last quarter, combined with our capital investment plans, demonstrates our commitment to a balanced approach and returning value to our shareholders.

Now turning to results for the quarter. Product inventory below the 5-year average supported stronger crack spreads on the West Coast, resulting in a Tesoro Index of over $16 per barrel, up more than $3 from a year ago. The company's realized gross margin per barrel, however, was down slightly year-over-year, driven primarily by 2 things. The first was over $115 million in benefits we recognized on long-haul foreign crude oil barrels in the third quarter of last year, attributable to the widening differential between WTI and Brent.

As a reminder, this was driven by our decision in the past to index these barrels to WTI. Earlier this year, we altered our derivatives program to use Brent as the primary index to better align the values of our long-haul crude oil barrels to product prices.

The second item was a lower realized gross margin in our California region. Over the past few years, we've captured, on average, over $4 per barrel of gross margin in excess of the index in the California region. In the third quarter, however, that capture rate in excess of the index fell to almost 0. We attribute this unusually low result to a few things in the quarter. First, we identified elevated levels of organic chlorides in the domestic supply at our Martinez refinery, which had been delivered via a major regional pipeline starting in mid-December. This pipeline typically supplies around 25% of the refinery's feedstock supply. The off-spec crude oil caused us to lose nearly 10,000 barrels per day of refinery crude rents for the month of September and negatively impacted our overall feedstock cost as we replaced those barrels with higher-priced prompt foreign crude oil purchases.

The impact from this off-spec crude oil, combined with other yield-reducing refinery maintenance activities in California, resulted in lost gross margin of approximately $40 million for the quarter. And while the affected pipeline remains out of service until what is expected to be late in the fourth quarter, we've optimized our feedstock purchases to compensate for the extended downtime and don't expect it to have a material impact on our margin capture in the fourth quarter.

Further impacting California gross margin capture during the quarter were lower marketing margins and adverse inventory timing impacts, which are typical in a rising crude oil price environment. Our current expectation for fourth quarter for California gross margin performance is more in line with our average historical performance.

Refinery throughput rates during the quarter averaged 626,000 barrels per day and direct manufacturing costs average $4.42 per barrel. Our retail segment reported $18 million in operating income, with 18% higher fuel sales volume year-over-year. Retail marketing margins were down sequentially, which is typical in a rising crude oil price environment. Same-store fuel sales during the quarter were down about 1% relative to last year.

Capital spending for the third quarter was $133 million. Turnaround spending was $11 million. We currently anticipate our 2012 capital spending plan to be about $590 million. This capital spending plan is lower than prior guidance by $80 million. About a 1/3 of the $80 million reduction is attributable to a decision we made to delay capital spending in Hawaii, pending the sale of that business. The remainder is simply a shift in timing. We continue to expect about $260 million in turnaround spending for 2012.

As we look forward, we remain cautiously optimistic about U.S. refining market conditions. Independent of the favorable market conditions, we are driving significant value from our existing asset base. We are encouraged by the benefits to date, resulting from the successful execution of our strategic plan. We look forward to realizing the significant value from the remaining projects in addition to the value created from the transformational BP acquisition.

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 fourth quarter. Scott?

G. Scott Spendlove

Thanks, Greg. As we reported last night, third quarter net income was $273 million or $1.92 per diluted share. Adjusted for special items, we reported an adjusted net income of $292 million or $2.05 per diluted share. Special items that were excluded from the quarterly results include, after tax, $17 million in debt redemption charges, primarily premiums and unamortized issuance costs associated with the prior 2015 and 2017 senior notes and a $2 million after-tax charge related to the liquidation of an accounts receivable balance with MF Global. That compares to net income in the third quarter last year of $345 million or $2.39 per diluted share.

Our corporate and unallocated costs for the quarter were $49 million before $9 million in corporate depreciation and $64 million in noncash stock-based compensation accruals, primarily related to stock appreciation rights. This exceeded our prior guidance due primarily to costs associated with the BP transaction and an incentive-based compensation accrual made during the quarter.

We ended the quarter with a cash balance of $1.4 billion, a slight build for the quarter. The gain reflects $612 million of EBITDA offset by cash interest and tax payments of $189 million, capital and turnaround spending of $144 million, net debt reduction and costs associated with our debt refinancing of $163 million and a $90 million deposit for the BP transaction.

The proceeds from the sale of the Long Beach logistics assets to TLLP are reflected in the net debt reduction. We remained undrawn on the corporate and TLLP revolvers, with additional revolving credit capacity of over $775 million and $300 million, respectively. We ended the quarter with total debt to total capitalization of 25%, down 3 percentage points from the end of the second quarter this year and net debt of just 4%.

Turning to the fourth quarter. The fourth quarter is seasonally a weak demand period, with PADD V gasoline demand typically falling about 4% relative to the third quarter. Crack spreads quarter-to-date, however, are up from last quarter and the fourth quarter last year on planned and unplanned refinery maintenance in the region.

In the Mid-Continent, gasoline and diesel cracks remained strong, driven by a continued feedstock cost advantage. So far in the fourth quarter, the average discount of WTI to Brent remains above $20 per barrel, up sequentially and year-over-year.

I'll close with guidance for the fourth quarter modeling purposes. We estimate throughput to be in thousands of barrels per day: 160 to 170 in the Pacific Northwest; 65 to 75 in the Mid-Pacific; 120 to 130 in the Mid-Continent; and 255,000 to 265,000 barrels per day in the California region. Manufacturing cost guidance for the fourth quarter in dollars per barrel is as follows: $3.90 in the Pacific Northwest; $3.70 in the Mid-Pacific; $3.85 in the Mid-Continent; and $5.85 per barrel in the California region. Our depreciation for refining is estimated at $100 million. Additional third quarter guidance items include estimated corporate expense, excluding depreciation of $42 million and interest expense before interest income of $33 million. 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 third quarter and year-to-date results. Despite a significant turnaround schedule this year, we've delivered solid operating results and completed 2 of our 5 large capital refinery projects, both on time and on budget, with the third expected to be completed this month. More recently, we've made progress on the BP transaction integration and financing plan. We remain confident in our ability to close this transaction by mid-next year, creating a high-quality, world-scale refining complex that provides opportunities to achieve economies of scale, reduce costs, improve the environment and benefit consumers, while improving Tesoro's competitive profile. With that, we'll now take your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Doug Leggate, Bank of America.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

I've got a couple of quick ones on California. Over the course of the quarter, I guess, the terms of the sale and purchase agreement were made public, Greg, and you made some comments about your preparedness or your commitment rather to dispose of Wilmington if there were any federal -- FTC issues. Can you give us an update as to what you're seeing in terms of your discussions with the authorities, in particular, in light of the spike in gasoline prices that seem to get folks a bit more agitated during the course of the quarter? And I've got a follow-up, please.

Gregory J. Goff

The process is working really kind of on schedule, Doug. We received a second request as expected at the latter part of September, and both ourselves and BP are responding and working with the FTC on that requested information, which will take several weeks to respond to. But at this point in time, everything is really progressing just as we had anticipated before we entered into the transaction. The second part of your question on the disruptions in the California market during the month with the refinery problems in that -- the FTC process goes back and looks over time what's going on there, and we don't anticipate any problems with that.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Well, Greg, as it relates to the Wilmington disposal, how does that impact the synergy assumptions that you gave us on the last call?

Gregory J. Goff

We fully expect to be able to go through and complete the transaction as we've laid it out. And if something were to change, we'll adjust accordingly. But it's premature to make any of those type of comments.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

So you don't really expect, to have to sell Wilmington.

Gregory J. Goff

Not when we entered the transaction, no.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Okay. My follow-up is really just a quick one. Any incremental efforts to bring Bakken crude down to the West Coast? And I'll leave it at that.

Gregory J. Goff

As a company, we are actively looking. I mean, we have been very focused to identify ways to improve our crude oil supply costs across everywhere we do business, and yes, we are looking at doing that.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Can you give any specifics on timing, Greg?

Gregory J. Goff

Today, we're taking a few thousand barrels a day into the California region until -- it takes some time to get the logistical infrastructure set up to do that. But over the last little bit, we have been taking Bakken crude oil into our California system, but not a significant amount.

Operator

Your next question comes from the line of Jeff Dietert, Simmons.

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

I was wondering if you could talk a little bit about what the state process is for approval of the BP Carson City deal.

Gregory J. Goff

Typically, Jeff, the state process runs in conjunction with the federal process, and that's kind of how we approach things. They work pretty collaboratively during that process. And at this stage, they're just running concurrently with no -- nothing really deviating from what we expected to happen.

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

Okay. And secondly on the rail, you mentioned 40,000 barrels a day expected to go Bakken to Anacortes in the fourth quarter. At what point do you expect to get up to the full 50,000?

Gregory J. Goff

Let me let Dan kind of talk to you about what's going on with the Anacortes crude oil supply.

Daniel Robert Romasko

Thanks, Greg. Yes, Jeff, as Greg mentioned and you repeated, we expect to get up to 40,000 barrels a day for the fourth quarter. The limitation is not the rail off-loading facilities working great. We're very pleased with it. The rail fleet movements are going well. The rail restriction is the learning process on actual delivery and rail restrictions on the tracks. We expect to overcome the majority of those issues in the first and second quarters of next year.

Operator

Your next question comes from the line of Robert Kessler, Tudor, Pickering, Holt.

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

A couple of follow-ups to the FTC and then also the Bakken rail question. On the FTC, is it possible to get some color at this point as to whether or not the FTC appears to be looking at the deal as a California market dynamic or a total West Coast dynamic as I think that's kind of important to the transaction as to which way they lean on that? And then, obviously early, but at this point, any possibility to say where you expect litigation to ensue following these rounds? And then I've got a question on the Bakken as well.

Gregory J. Goff

Yes, in response to both your questions, Robert, on the processes, I mean, there's -- we can't comment on that. We don't know. We know we provide the information and work with the FTC and Attorney General of the State of California. But in answer both of your questions, it's not within our control to respond to those questions.

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

Okay. Understood. On the Bakken deliveries to Anacortes, given that the crude oil was just showing up there, I think, you said in September -- I imagine the volumes on average for 3Q were fairly limited, but can I just confirm what the 3Q delivered volumes were on average?

G. Scott Spendlove

Yes, we haven't disclosed those numbers. And I guess, what we can best say is we're quite pleased with the delivery and the startup and ramp-up in the fourth quarter will be 40,000 a day.

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

Is there any guidance on how much the Bakken delivery and displacement of ANS would've contributed to earnings in the third quarter?

G. Scott Spendlove

Yes, we haven't disclosed those numbers.

Operator

Your next question comes from the line of Evan Calio, Morgan Stanley.

Evan Calio - Morgan Stanley, Research Division

So one more follow-up here, FTC related. I mean, can you generally outline your position, or what gives you the confidence that market concentration risks don't pose a risk to the deal as the FTC is -- has objected before -- 2 prior times to market concentration deals in California? Like can you kind of help us understand what your offsetting position is to the agency?

Gregory J. Goff

Yes. I mean, as you would expect when you make a decision to enter into an transaction like this, you evaluate what the question you just asked. And based upon the expert outside advice we have both from legal and economic analysis standpoint, we are confident that the way we evaluated the levels to comply with the FTC that we're in a very good position to do that. They have to run their process how they do it, and we respond to their request, and that's up to extent of what we can say right now.

Evan Calio - Morgan Stanley, Research Division

And was the inclusion of the provision to propose the sale of Wilmington then that was presumably at the insistence of BP, and I guess, you just-- it was your opinion that you wouldn't have to exercise, you wouldn't have to do that. Is that fair?

Gregory J. Goff

We are very confident that we will be able to complete the transaction as we originally described it.

Evan Calio - Morgan Stanley, Research Division

Crystal clear. One other small follow-up. Can you discuss how many shares you guys acquired in the quarter from the buyback?

Gregory J. Goff

During the third quarter, we did not execute our share repurchase program. We focused on doing all of our debt activity that I described in the press release. And we will -- it is our intention to begin the share buyback program now that the quarters ended.

Evan Calio - Morgan Stanley, Research Division

And is that -- so are you restricted from buying or you just chose not to yet?

Gregory J. Goff

No. We chose not to during the third quarter.

Evan Calio - Morgan Stanley, Research Division

And is the buyback more an opportunistic plan at some price below which you believe is fair or is it kind of more volume-executed?

Gregory J. Goff

It's -- our intent will be just to execute it as we plan to over time, but it is somewhat more opportunistic.

Operator

Your next question comes from the line of Edward Westlake, Crédit Suisse.

Edward Westlake - Crédit Suisse AG, Research Division

It seems like my question is going to be around costs. But I mean, presumably, you will continue even if you were to dispose Wilmington to get some of the synergies such as the access to the VLCC dock for the Tesoro system. Can you give us some color on that?

Gregory J. Goff

I think at this point in time, we are very focused on executing the transaction exactly like we laid it out. We were very confident that we'll be able to do that. And we -- all of our plans are to execute as a combined facility just like we've laid it out. And it's just -- that's the best we can say at this point in time. I think we're -- we made the decision, as well as BP, to do the transaction, confident that we would get approval. And that's where we stand.

Edward Westlake - Crédit Suisse AG, Research Division

Okay, then 2 questions on capture rates. If I look at the Pacific Northwest, obviously in Q2, I think those in timing differences on crude, which kind of boosted the capture rate relative to the benchmark margins and those unwound in 3Q, so it was kind of, I think, $17 was less than you did in Q2. Is Q3 like a good base to use going forward or are there any other fundings that depressed Q3 in the Northwest?

Gregory J. Goff

Let me ask Dan to comment on your question.

Daniel Robert Romasko

Q3 is actually fairly typical. The only production-type issue that had any bearing on it was reduced rates in Alaska associated with reactor replacement that we had mentioned in the second quarter call. But from a capture rate perspective, I think Q3 is pretty typical.

Edward Westlake - Crédit Suisse AG, Research Division

And while I'm on capture rates, I think you're going to run from your guidance pretty hard in California through the fourth quarter if -- sometimes, when the industry runs hard the whole units that the capture rate is somewhat lower. Is that a fair reflection of what you expect for Q4? Or give us some color there.

Daniel Robert Romasko

We expect the fourth quarter capture rates in California to be typical of what we've seen historically. I don't know that I'd characterized running full as an industry as a capture rate impact. I think it's more a matter of what our index capability is versus what the index actually is relative to what we can do in the marketplace.

Edward Westlake - Crédit Suisse AG, Research Division

Right. And a final one, maybe just an update on Hawaii.

Gregory J. Goff

Let me comment on that. The Hawaii process like we've talked previously is really kind of progressing on schedule. We received final bids as we expected during the latter part of September. And so we are working through that process with the final bidders as we speak. So at this stage, we are basically on our schedule.

Operator

Your next question comes from the line of Sam Margolin, Dahlman Rose.

Sam Margolin - Dahlman Rose & Company, LLC, Research Division

I just have a question on -- follow-up on capture rates. Some of your peers on the product side have talked about discrepancies between the posted price and what you realize with the branded segments. I'll just ask for 4Q because, obviously, the posted price has -- took off a little bit in the wake of some outages in October. So I was wondering if you could just comment on that and if that was a factor in 3Q at all?

Gregory J. Goff

Sure. Let me take a shot at that. I'm assuming you're referring to the product market?

Sam Margolin - Dahlman Rose & Company, LLC, Research Division

Yes.

Gregory J. Goff

So we had a significant rising market in the fourth quarter and in a rising market marketing -- the marketing segment typically has a lower margin, because it can't keep up with that pace. And we expect to recover that in the falling price market, and we're seeing some of that in the fourth quarter now, although, it's too early to call.

Sam Margolin - Dahlman Rose & Company, LLC, Research Division

Okay, that's great. And with respect to sort of filling volume requirements with third party purchases, were there any incidents of maybe having to buy product at inflated spot prices and moving it through the branded segment at a discount that might have cut into the margin a little bit?

Gregory J. Goff

During the quarter, we've met all of our commitments to all of our customers, and we bought in the market like we would normally buy to meet those commitments, so at market prices, so nothing unusual.

Operator

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

Paul Y. Cheng - Barclays Capital, Research Division

A number of quick questions. The first one is I want to follow on with the earlier question. Greg, in the third quarter, did we see a substantial squeeze in the wholesale margin? And I suppose that when you report your refining margin, that's including the spot and the wholesale margin, right?

Gregory J. Goff

So we saw the squeeze certainly in the retail side of the business and we report that separately. The wholesale side of the business saw some disruption not as significant, and that's reported in the manufacturing segment.

Paul Y. Cheng - Barclays Capital, Research Division

Right. So but that -- the wholesale margin squeeze or that the lower wholesale margin is not meaningful impact in your third quarter result?

Gregory J. Goff

Not as significant an impact as we saw between street price and rack price.

Paul Y. Cheng - Barclays Capital, Research Division

Okay. Okay. On the -- Greg, can you give us a rough number -- what is the Mandan expansion contribution in the third quarter or that should we assume Mandan unit profit and Salt Lake is roughly the same so we can just take your Mid-Con unit EBITDA?

Gregory J. Goff

Yes, it's about the same, Paul. That's a good assumption.

Paul Y. Cheng - Barclays Capital, Research Division

Okay. Scott, can you give me some balance sheet data? What is your working capital at the end of the third quarter? And also, do you have Tesoro Logistics working capital and their long-term debt?

G. Scott Spendlove

Yes, Paul, I can give you the working capital. It was about $1.6 billion -- $1.662 billion, including cash, or $297 million, excluding cash. I don't have working capital for TLLP. Long-term debt at TLLP would be the $350 million of new notes that we issued.

Paul Y. Cheng - Barclays Capital, Research Division

If possible, just hopefully, a simple request in the future when you report it, is it also possible that you also include the TLLP balance sheet data in your press release? That would be helpful. On -- I know that for the unit train when you initially come out, Greg, you have a base case economic of $35 million to $40 million a year, so that translates into about -- that's based on 30,000 barrel per day, so that translates into about $3.20 to $3.65 per barrel. If we look at to date, I mean, I'm not asking you to make any projection, just looking at today, the market condition, what's that unit margin has been?

Daniel Robert Romasko

This is Dan. Let me take a shot. If we want to look at today specifically as an example, TI, Brent -- and I might be a day out, it was in the $23 range. Bakken, Clearbrook relative to TI was actually negative, so you're probably talking close to $25 of total margin. If we look at it from ANS, it was maybe -- it's even better. The total spread for Bakken to ANS was close to $20 a barrel. We've indicated that our rail costs are in that $8 to $9 range, so you've got something like $12 a barrel plus the $3 to $5 a barrel of refining value, so somewhere in that $15 to $17 per barrel today.

Paul Y. Cheng - Barclays Capital, Research Division

Right. So that will be about $12 higher than what you originally expected, in other words, if you're looking at today's market?

Gregory J. Goff

That's right. That's correct, Paul, versus what we originally said.

Paul Y. Cheng - Barclays Capital, Research Division

Okay. On the pipeline outage. Greg, is that Tesoro pipeline? Sorry that I may have missed you already said it, so if you did, I apologize.

Gregory J. Goff

It's not a Tesoro pipeline though. It's another company's pipeline in California that delivers the crude oil into the really the Martinez refining complex there. It's not ours.

Paul Y. Cheng - Barclays Capital, Research Division

So I mean, do you have any claim on them that for the -- delivering the off-spec crude to you?

Gregory J. Goff

I'm sorry could you say that question...

Paul Y. Cheng - Barclays Capital, Research Division

Can you file a law suit and ask for compensation?

Gregory J. Goff

It's too premature to comment on that. Our focus has been on resolving the issues with the crude quality and getting alternative crudes in there. So we'll work our way through that as we go through the next few months here, Paul.

Paul Y. Cheng - Barclays Capital, Research Division

A final one for me is on the dividend. Just first of all, thank you, for raising the dividend shortly after you initiate. But trying to understand that or if I'm looking at your earning power with all the project that coming on stream over the next couple of years, that look like even if we get back into kind of market condition of 2009, in the consideration of the structural changes in the crude complex, you may be able to earn more than $5 per share. And if that's the case, is there anything that make management will be hesitant that you can support or and you can issue a regular dividend in the $1.50 to $2 per share kind of range? And how does the board -- what kind of criteria and timing we should think about when board consider when or how much that -- to raise the regular dividend?

Gregory J. Goff

Yes, it's our intention to go back and look at our dividend on some frequency and keep our dividend competitive and reflect how the forward look of the company is. So we will continue to look at it as we go forward, Paul.

Paul Y. Cheng - Barclays Capital, Research Division

I would just say that a lot of your long-term shareholder would really appreciate a much more aggressive and near-term dividend increase policy.

Gregory J. Goff

I think just to restate one thing. I mean, I mentioned it in the script here that we talked about, but our focus is to find high returning capital projects to strengthen our competitive position, and at the same time, find ways to return cash to shareholders to deliver significant value. That's where we're focused on.

Operator

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

Paul Sankey - Deutsche Bank AG, Research Division

Greg, you clearly outlined that you expect the deal of Carson should go through as you originally planned. There was as stated [indiscernible] in FTC. I was just wondering regarding the FTC versus the state and thinking that to Shell's Bakersfield, which if I remember they intended to shut and essentially were prevented from shutting by the state. Could you talk about the capability of the state, for example, to require you to continue running the FTC or any other -- I guess, I'm just vague on exactly what the -- I think, we're clear on the FTC's mandates and some of its methodology too. I'm not just so clear on exactly the state can and can't require you to do. Could you talk a little bit about that?

Daniel Robert Romasko

I think the main point to reemphasize, Paul, is, what typically happens is the state works in concert with the FTC during the process that we're going through, which will take several months like we've already mentioned there. And we fully expect to work with both the Attorney General's Office as well as the FTC to provide all the information to do the evaluation and expect them to look at it on a very comparable basis. So we don't expect any difference from the state versus the FTC.

Paul Sankey - Deutsche Bank AG, Research Division

Is that right? Okay. Because I would've thought -- thinking back to Bakersfield, I don't know what really happened there, but as far as I remember, there wouldn't have been an FTC issue around the requirement for Shell not to shut the refinery?

Gregory J. Goff

Yes. I think we'd -- someone would have to go back in and look at what the decisions were that the state made to drive that request like you stated earlier, so we don't expect to be in the same position.

Paul Sankey - Deutsche Bank AG, Research Division

You don't. Why not?

Gregory J. Goff

Because we expect to run the 2 processes and comply with both the FTC and the Attorney General, as I stated earlier.

Paul Sankey - Deutsche Bank AG, Research Division

Okay, that's -- I think I understand. The -- just going back to the capture now, Greg. You highlighted clearly why there were some issues regarding your capture? Could you just talk about -- and I think you've kind of addressed this, but I think it bear just repeating, which of those impacts would you say are very much one-off that would only occur in this quarter? And which would you say were at risk potentially, for example, in the rapidly rising crude market of reoccurring so that we can risk your future capture, if you like?

Gregory J. Goff

Yes. I think the primary onetime things are attributable to the supply prompts on the pipeline, as well as the impact on our maintenance activity that are really onetime activity. Any type of market activity with the marketing prices in that, as you understand, that will have an impact that we can't predict. But definitely, crude supply, as well as the -- some of the yield impact on our maintenance activity were onetime.

Paul Sankey - Deutsche Bank AG, Research Division

Yes, and I guess any changes to your crude pricing methodology, would expect to be stable from here going on.

Gregory J. Goff

Right. As we stated, we price off at Brent and that stay -- well, that will stay consistent. That's correct.

Operator

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

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

Since a lot of the stuff's been covered on the West Coast things, I guess, I'll ask the question in the Mid-Con region, I guess, maybe more specifically North Dakota. As we think about the changes and the differentials of Bakken instead of a discount to WTI more of a premium. What advantages do you have on your refinery in terms of its location relative to Clearbrook and in terms of pricing advantages, maybe transportation as well?

Daniel Robert Romasko

Sure. I'll take that one. This is Dan. We have obviously a cost advantage to deliver the crude into Mandan simply because we sit on top of the reservoir and we, through TLLP, operate the pipeline systems and the gathering systems. So our costs are advantaged. The actual pricing differentials between what we buy at the fuel transport and what we -- what you see in the pricing centers for Clearbrook vary from month to month and they can be volatile. I don't know that we would forecast that, which is the first part of your question, that we would forecast that you'd expect to see Bakken price at a premium to WTI though. I think we think that, that's going to actually be flat to improved. It's just there's some volatility as to takeaway capacity, comes in lumps with rail offload -- or rail loading and the production growth is relatively stable. So the blockiness us of the offtake and the relative linearity of the production profile growth is leading some volatility. And that last factor that drives that volatility is what's occurring in Canada at the same time. If you look at the Canadian sweet barrels, they have a pricing relationships to TI very highly correlated to Bakken because we're servicing the same market with the same transportation limitations.

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

Okay. And then maybe another way to kind of think about this. If you're exploring the ability to move Bakken area crude, I assume, when you talked about moving light sweet barrels to California, and if that's not accurate, please help me, but what would be versus the, say, $8 to $9 per barrel to rail that you have established for Anacortes? I mean, ground floor today, trying to rail to Anacortes, is it still $8 to $9 or would somebody be facing significantly higher costs? I mean, for example, we hear about kind of a $15 costs thereabouts to rail to the East Coast. I'm just wondering, to California, would it be that kind of cost today or is there some other advantage in going to California versus East Coast?

Daniel Robert Romasko

From a rail transportation cost, the most advantaged market to go to is Anacortes Northern U.S. at about $8 to $9 range. We view Northern California to be kind of in that $10 range; Southern California to be somewhat close to the Gulf Coast, which is in the $12 range; and the East Coast to be the least advantaged, which should be in the $15 range. And all those should be viewed as not absolute but relative.

Operator

[Operator Instructions] The next question will come from the line of Chi Chow, Macquarie Capital.

Chi Chow - Macquarie Research

Dan, I got an operational question. It looks like recently there is reported fire in the Golden Eagle coker. Can you give us the status update there?

Daniel Robert Romasko

You have me on a disadvantage. I'm not aware of a fire report in the...

Chi Chow - Macquarie Research

Really? Okay.

Daniel Robert Romasko

Yes. We did have a seal, a small fire that occurred in Golden Eagle about a week ago that had little to no impact to operations, maybe that's what you're referring to.

Chi Chow - Macquarie Research

It could be. It reported a -- related to the coker, maybe it was a compressor or something like that.

Daniel Robert Romasko

Yes, yes, that would be right.

Chi Chow - Macquarie Research

But you've got no operational issues right now at the plant?

Daniel Robert Romasko

None that have a material impact.

Chi Chow - Macquarie Research

Okay. On your projects, Greg, could you remind us on the Salt Lake City project? What comes on Phase 1 versus Phase 2?

Gregory J. Goff

Let me let Dan comment on that, Chi.

Daniel Robert Romasko

Sure. Phase 1 includes all of the modifications to the SEC, the fluidized catalytic cracking unit, as well as the crude unit. So those are kind of the big pieces that occur in that, including crude offloading and those sorts of things. And that gives us the capability to ramp up almost 1/2 of the increase of the waxy crudes. The second phase of the project is the back end of the FCC, the vapor recovery or what some people call the gas recovery facilities. So that comes on in Phase 2. As we've mentioned before, Phase 1 completes in the beginning part of the second quarter next year and Phase 2 occurs late in 2014.

Chi Chow - Macquarie Research

Okay. And then one final higher-level question. Some of your competitors are actively complaining about the regulatory environment in California and voicing concerns about the long-term outlook on doing business there, yet you are looking to expand your presence in the state. Can you talk about your views on the long-term outlook for your business in California?

Gregory J. Goff

I mean, when we acknowledged that the environment in California is a demanding environment to do business in period. It's demanding and requires that we believe that the steps that we have taken regarding our decision to combine the Wilmington refinery with the BP refinery puts us in a very strong position, and really I tried to comment on that during my comments at the beginning of this conversation and that the demanding environment in California is never going to change. That's just the way that it is. But how we position our assets in that in the marketplace will allow us to be successful in that environment. That's why we're doing what we're doing.

Chi Chow - Macquarie Research

What about at Golden Eagle? Are you kind of comfortable with your position there? And do you have any sort of advantages at that plant that'll make things a little bit more palpable more going forward?

Daniel Robert Romasko

Golden Eagle is a -- I mean, it's a strong refinery, a strong contributor already with its advantaged crude position and upgrading capability of the refinery. And over time there, things that we're looking at will continue to further enhance the capability of that refinery, but it is a strong performing asset.

Operator

And thank you, ladies and gentlemen. This concludes today's question-and-answer session as well as today's conference call. We'd like to thank you for your participation, and you may now disconnect and have a great day.

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