Exhibit 99.1
Solid Operational Performance and Optimization of Assets Drives
Tesoro Corporation's Record Earnings
SAN ANTONIO--(BUSINESS WIRE)--Aug. 3, 2006--Tesoro Corporation
(NYSE:TSO) today reported net earnings of $326 million, or $4.66 per
share, for the second quarter of 2006 compared to net earnings of $184
million, or $2.62 per share, for the second quarter of 2005.
"The second quarter demonstrates the tangible contributions driven
by an effective organizational structure and talented people. Our
operations are managed by employees who are focused on safety, crude
flexibility, reliability and cost control and delivering positive
results to our shareholders," said Bruce A. Smith, Chairman, President
and CEO of Tesoro. "The optimal mix of crude sources, product markets,
production and logistics management led to our record results.
Refining margins in the western United States were robust this
quarter, highlighting the market fundamentals of tight gasoline
supplies and greater national demand for high octane gasoline blending
components. We expect these fundamentals to continue to drive a strong
margin environment, especially on the West Coast," said Smith.
For the first half of 2006, the company reported net earnings of
$369 million, or $5.25 per share, compared to $212 million, or $3.02
per share, for the first six months of 2005.
Refining operating income for the second quarter was over 50%
higher or $212 million more than 2005 with significant gains from the
Northwest and California regions driven by record second quarter
throughput and high clean product yields. Benchmark crack spreads in
both regions were nearly $10 per barrel ahead of the same period last
year.
Capital spending for the quarter was $114 million including $20
million for turnarounds. For the year, the Company expects capital
spending of approximately $630 million, including turnarounds. In
accordance with our third quarter announcement of the cancellation of
the Anacortes refinery coker project, the company expects to record in
the third quarter a pre-tax charge between $15 and $25 million for the
termination of that project.
"The margin environment in the second quarter was very, very
strong and we expect the fundamentals to continue to be good for the
remainder of the year. The key to our performance will be to continue
to have each and every employee focus on safety and operational
excellence. That will enable us to run our refineries at the optimal
level and capture these strong margins," said Smith.
Board Declares Quarterly Dividend
Tesoro announced today that its Board of Directors has approved
the regular quarterly cash dividend of $0.10 per share. The dividend
is payable September 15, 2006 to shareholders of record as of
September 1, 2006.
Public Invited to Listen to Analyst Conference Call via Internet
At 3:00 p.m., CDT, Thursday, August 3, 2006, Tesoro will
broadcast, live, its conference call with analysts regarding second
quarter 2006 results. Interested parties may listen to the live
conference call over the Internet by logging on to Tesoro's Internet
site at http://www.tsocorp.com.
Tesoro Corporation, a Fortune 200 Company, is an independent
refiner and marketer of petroleum products. Tesoro operates six
refineries in the western United States with a combined capacity of
approximately 560,000 barrels per day. Tesoro's retail-marketing
system includes approximately 465 branded retail stations, of which
over 200 are company owned and operated under the Tesoro(R) and
Mirastar(R) brands.
This earnings release contains certain statements that are
"forward-looking" statements concerning the market environment,
capital expenditures and accounting adjustments within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. For more information concerning
factors that could affect these statements see our annual report on
Form 10-K and quarterly reports on Form 10-Q, filed with the
Securities and Exchange Commission. We undertake no obligation to
publicly release the result of any revisions to any such
forward-looking statements that may be made to reflect events or
circumstances that occur, or which we become aware of, after the date
hereof."
TESORO CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(In millions except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2006 2005 2006 2005
--------- ------- ------- -------
Revenues $ 4,929 $ 4,033 $ 8,806 $ 7,204
Costs and Expenses:
Costs of sales and operating
expenses 4,276 3,601 7,965 6,598
Selling, general and
administrative expenses (a) 45 48 85 102
Depreciation and amortization 60 43 120 84
Loss on asset disposals and
impairments 5 4 12 5
--------- ------- ------- -------
Operating Income 543 337 624 415
Interest and Financing Costs (b) (21) (32) (41) (64)
Interest Income and Other 7 - 17 1
--------- ------- ------- -------
Earnings Before Income Taxes 529 305 600 352
Income Tax Provision 203 121 231 140
--------- ------- ------- -------
Net Earnings $ 326 $ 184 $ 369 $ 212
========= ======= ======= =======
Net Earnings Per Share:
Basic $ 4.79 $ 2.69 $ 5.40 $ 3.13
Diluted $ 4.66 $ 2.62 $ 5.25 $ 3.02
Weighted Average Common Shares:
Basic 68.0 68.3 68.3 67.5
Diluted 69.9 70.1 70.3 70.1
(a) During the six months ended June 30, 2005, the Company recorded
stock-based and other compensation charges totaling $11 million
related to the termination and retirement of certain executive
officers.
(b) In April 2005, the Company voluntarily prepaid the remaining $96
million outstanding principal balance of the senior secured term
loans at a prepayment premium of 1%, which resulted in a pretax
charge of $3 million consisting of the write-off of unamortized
debt issuance costs and the 1% prepayment premium.
NET EARNINGS ADJUSTED FOR SPECIAL ITEMS
(Unaudited)
(In millions except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2006 2005 2006 2005
--------- ------- ------- -------
Net Earnings - U.S. GAAP $ 326 $ 184 $ 369 $ 212
Special Items, After-tax:
Termination and retirement
costs (a) - - - 6
Debt prepayment and financing
costs (b) - 2 - 2
--------- ------- ------- -------
Net Earnings Adjusted for
Special Items $ 326 $ 186 $ 369 $ 220
========= ======= ======= =======
Net Earnings Per Share - U.S.
GAAP $ 4.66 $ 2.62 $ 5.25 $ 3.02
Special Items Per Share, After-
tax:
Termination and retirement
costs (a) - - - 0.09
Debt prepayment and financing
costs (b) - 0.03 - 0.03
--------- ------- ------- -------
Net Earnings Per Share Adjusted
for Special Items $ 4.66 $ 2.65 $ 5.25 $ 3.14
========= ======= ======= =======
Note: The special items present information that the Company believes
is useful to investors. The Company believes that the special items
described above are not indicative of its core operations.
TESORO CORPORATION
SELECTED OPERATING SEGMENT DATA
(Unaudited)
(In millions)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2006 2005 2006 2005
--------- ------- ------- -------
Operating Income (Loss)
Refining $ 593 $ 381 $ 718 $ 513
Retail (12) (9) (24) (20)
--------- ------- ------- -------
Total Segment Operating
Income 581 372 694 493
Corporate and Unallocated Costs (38) (35) (70) (78)
--------- ------- ------- -------
Operating Income 543 337 624 415
Interest and Financing Costs
(b) (21) (32) (41) (64)
Interest Income and Other 7 - 17 1
--------- ------- ------- -------
Earnings Before Income Taxes$ 529 $ 305 $ 600 $ 352
========= ======= ======= =======
Depreciation and Amortization
Refining $ 54 $ 37 $ 108 $ 72
Retail 4 4 8 8
Corporate 2 2 4 4
--------- ------- ------- -------
Depreciation and
Amortization $ 60 $ 43 $ 120 $ 84
========= ======= ======= =======
-
Capital Expenditures
Refining $ 88 $ 48 $ 143 $ 85
Retail - 1 1 1
Corporate 6 3 8 30
--------- ------- ------- -------
Capital Expenditures $ 94 $ 52 $ 152 $ 116
========= ======= ======= =======
BALANCE SHEET DATA
(Unaudited)
(Dollars in millions)
June 30, December 31,
2006 2005
----------- ------------
Cash and Cash Equivalents $ 620 $ 440
Total Assets $ 5,600 $ 5,097
Total Debt $ 1,042 $ 1,047
Total Stockholders' Equity $ 2,197 $ 1,887
Total Debt to Capitalization Ratio 32% 36%
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2006 2005 2006 2005
-------- -------- -------- -------
REFINING SEGMENT
Total Refining Segment
Throughput (thousand barrels
per day)
Heavy crude 288 271 266 267
Light crude 236 251 236 220
Other feedstocks 20 19 18 22
-------- -------- -------- -------
Total Throughput 544 541 520 509
======== ======== ======== =======
Yield (thousand barrels per
day)
Gasoline and gasoline
blendstocks 257 258 246 241
Jet fuel 66 66 67 66
Diesel fuel 129 126 114 108
Heavy oils, residual
products, internally
produced fuel
and other 113 111 114 113
-------- -------- -------- -------
Total Yield 565 561 541 528
======== ======== ======== =======
Refining Margin ($/throughput
bbl) (c)
Gross $ 17.88 $ 13.28 $ 13.44 $ 11.00
Manufacturing cost before
depreciation and
amortization (c) $ 3.36 $ 3.36 $ 3.55 $ 3.45
Segment Operating Income
($ millions)
Gross refining margin (after
inventory changes) (d) $ 858 $ 640 $ 1,253 $ 1,007
Expenses
Manufacturing costs 166 165 335 318
Other operating expenses 38 48 77 87
Selling, general and
administrative 5 7 10 14
Depreciation and
amortization (e) 54 37 108 72
Loss on asset disposals and
impairments 2 2 5 3
-------- -------- -------- -------
Segment Operating
Income $ 593 $ 381 $ 718 $ 513
======== ======== ======== =======
Product Sales (thousand
barrels per day) (f)
Gasoline and gasoline
blendstocks 279 307 275 287
Jet fuel 90 102 90 99
Diesel fuel 133 142 129 133
Heavy oils, residual products
and other 82 76 82 72
-------- -------- -------- -------
Total Product Sales 584 627 576 591
======== ======== ======== =======
Product Sales Margin
($/barrel) (f)
Average sales price $ 90.45 $ 67.06 $ 82.06 $ 63.34
Average costs of sales 74.24 56.14 70.09 53.91
-------- -------- -------- -------
Product Sales Margin $ 16.21 $ 10.92 $ 11.97 $ 9.43
======== ======== ======== =======
(c) Management uses gross refining margin per barrel to evaluate
performance, allocate resources and compare profitability to other
companies in the industry. Gross refining margin per barrel is
calculated by dividing gross refining margin before inventory
changes by total refining throughput and may not be calculated
similarly by other companies. Management uses manufacturing costs
per barrel to evaluate the efficiency of refinery operations and
allocate resources. Manufacturing costs per barrel may not be
comparable to similarly titled measures used by other companies.
Investors and analysts use these financial measures to help
analyze and compare companies in the industry on the basis of
operating performance. These financial measures should not be
considered as alternatives to segment operating income, revenues,
costs of sales and operating expenses or any other measure of
financial performance presented in accordance with accounting
principles generally accepted in the United States of America.
(d) Gross refining margin is revenues less costs of refining
feedstocks, purchased products, transportation and distribution.
Gross refining margin approximates total refining segment
throughput times gross refining margin per barrel, adjusted for
changes in refined product inventory due to selling a volume and
mix of product that is different than actual volumes manufactured.
Also includes the effect of intersegment sales to the retail
segment at prices which approximate market.
(e) Includes manufacturing depreciation and amortization per
throughput barrel of approximately $1.01 and $0.66 for the three
months ended June 30, 2006 and 2005, respectively, and $1.06 and
$0.70 for the six months ended June 30, 2006 and 2005,
respectively.
(f) Sources of total product sales include products manufactured at
the refineries, products drawn from inventory balances and
products purchased from third parties. Total product sales margin
includes margins on sales of manufactured and purchased products
and the effects of inventory changes. Total product sales were
reduced by approximately 23 Mbpd and 21 Mbpd in the three months
and six months ended June 30, 2006, respectively, as a result of
recording certain purchases and sales transactions with the same
counterparty on a net basis beginning in the 2006 first quarter
upon adoption of EITF Issue No. 04-13, "Accounting for Purchases
and Sales of Inventory with the Same Counterparty."
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
2006 2005 2006 2005
---------- ------- ------- -------
Refining By Region
California (g)
Throughput (thousand barrels
per day)
Heavy crude 161 156 150 150
Light crude - 7 2 3
Other feedstocks 8 8 8 7
---------- ------- ------- -------
Total Throughput 169 171 160 160
========== ======= ======= =======
Yield (thousand barrels per
day)
Gasoline and gasoline
blendstocks 100 100 95 91
Diesel fuel 50 51 43 46
Heavy oils, residual
products, internally
produced fuel and other 29 29 32 31
---------- ------- ------- -------
Total Yield 179 180 170 168
========== ======= ======= =======
Refining Margin ($/throughput
bbl)
Gross $ 26.28 $ 19.23 $ 20.16 $ 18.00
Manufacturing cost before
depreciation and
amortization $ 5.56 $ 5.31 $ 5.80 $ 5.42
Pacific Northwest (Alaska &
Washington) (g)
Throughput (thousand barrels
per day)
Heavy crude 97 96 91 89
Light crude 73 80 69 61
Other feedstocks 7 6 6 11
---------- ------- ------- -------
Total Throughput 177 182 166 161
========== ======= ======= =======
Yield (thousand barrels per
day)
Gasoline and gasoline
blendstocks 75 78 70 71
Jet fuel 29 34 29 31
Diesel fuel 32 30 26 20
Heavy oils, residual
products, internally
produced fuel and other 47 46 46 45
---------- ------- ------- -------
Total Yield 183 188 171 167
========== ======= ======= =======
Refining Margin ($/throughput
bbl)
Gross $ 15.80 $ 12.08 $ 11.82 $ 8.83
Manufacturing cost before
depreciation and
amortization $ 2.41 $ 2.42 $ 2.76 $ 2.76
Mid-Pacific (Hawaii) (g)
Throughput (thousand barrels
per day)
Heavy crude 30 19 25 28
Light crude 56 51 61 49
---------- ------- ------- -------
Total Throughput 86 70 86 77
========== ======= ======= =======
Yield (thousand barrels per
day)
Gasoline and gasoline
blendstocks 21 16 22 18
Jet fuel 27 21 28 24
Diesel fuel 13 11 13 11
Heavy oils, residual
products, internally
produced fuel and other 26 23 25 25
---------- ------- ------- -------
Total Yield 87 71 88 78
========== ======= ======= =======
Refining Margin ($/throughput
bbl)
Gross $ 7.32 $ 6.71 $ 5.28 $ 5.26
Manufacturing cost before
depreciation and
amortization $ 1.77 $ 2.52 $ 1.66 $ 2.06
(g) The Company experienced reduced throughput due to scheduled
maintenance turnarounds at the Alaska refinery during the 2006
second quarter and the California refinery during the 2006 first
quarter and unscheduled downtime at the North Dakota refinery
during the 2006 second quarter. During the 2005 second quarter,
the Company experienced reduced throughput at the Hawaii refinery
due to a scheduled maintenance turnaround. In the 2005 first
quarter the Company experienced reduced throughput at the
California and Washington refineries, primarily as a result of
scheduled major maintenance turnarounds and unscheduled downtime.
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2006 2005 2006 2005
--------- ------- ------- -------
Mid-Continent (North Dakota &
Utah) (g)
Throughput (thousand barrels
per day)
Light crude 107 113 104 107
Other feedstocks 5 5 4 4
--------- ------- ------- -------
Total Throughput 112 118 108 111
========= ======= ======= =======
Yield (thousand barrels per
day)
Gasoline and gasoline
blendstocks 61 64 59 61
Jet fuel 10 11 10 11
Diesel fuel 34 34 32 31
Heavy oils, residual products,
internally produced fuel
and other 11 13 11 12
--------- ------- ------- -------
Total Yield 116 122 112 115
========= ======= ======= =======
Refining Margin ($/throughput
bbl)
Gross $ 17.32 $ 10.19 $ 12.93 $ 7.82
Manufacturing cost before
depreciation and amortization $ 2.75 $ 2.48 $ 2.95 $ 2.58
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
2006 2005 2006 2005
---------- -------- -------- -------
RETAIL SEGMENT
Number of Stations (end of
period)
Company-operated 210 213 210 213
Branded jobber/dealer 257 283 257 283
---------- -------- -------- -------
Total Stations 467 496 467 496
========== ======== ======== =======
Average Stations
(during period)
Company-operated 210 214 210 214
Branded jobber/dealer 256 286 259 289
---------- -------- -------- -------
Total Average Retail
Stations 466 500 469 503
========== ======== ======== =======
Fuel Sales (millions of
gallons)
Company-operated 64 67 123 132
Branded jobber/dealer 47 50 87 96
---------- -------- -------- -------
Total Fuel Sales 111 117 210 228
========== ======== ======== =======
-
Fuel Margin ($/gallon) (h) $ 0.10 $ 0.15 $ 0.12 $ 0.13
Merchandise Sales ($ millions) $ 38 $ 35 $ 70 $ 65
Merchandise Margin
($ millions) $ 10 $ 9 $ 18 $ 17
Merchandise Margin % 26% 26% 26% 26%
Segment Operating Income
(Loss)($ millions)
Gross Margins
Fuel (i) $ 11 $ 17 $ 26 $ 30
Merchandise and other non-
fuel margin 11 10 20 18
---------- -------- -------- -------
Total Gross Margins 22 27 46 48
Expenses
Operating expenses 23 22 45 44
Selling, general and
administrative 6 8 12 14
Depreciation and
amortization 4 4 8 8
Loss on asset disposals and
impairments 1 2 5 2
---------- -------- -------- -------
Segment Operating Income
(Loss) $ (12)$ (9) $ (24)$ (20)
========== ======== ======== =======
(h) Management uses fuel margin per gallon to compare profitability to
other companies in the industry. Investors and analysts use fuel
margin per gallon to help analyze and compare companies in the
industry on the basis of operating performance. Fuel margin per
gallon is calculated by dividing fuel gross margin by fuel sales
volumes. Fuel margin per gallon may not be calculated similarly by
other companies.
(i) Includes the effect of intersegment purchases from the refining
segment at prices which approximate market.
CONTACT: Tesoro Corporation, San Antonio
Investor Relations:
Scott Phipps, 210-283-2882
or
Public Relations:
Natalie Silva, 210-283-2729