Exhibit 99.1
Tesoro Corporation Announces Record
Third Quarter Earnings and Throughput
SAN ANTONIO--(BUSINESS WIRE)--Nov. 2, 2006--Tesoro Corporation
(NYSE:TSO) today reported third quarter net income of $274 million, or
$3.92 per share, as compared to $226 million, or $3.20 per share, for
the third quarter of last year. Results for the third quarter include
an after-tax charge of $17 million, or $0.24 per share, related to the
termination of the Anacortes coker project. Excluding this charge,
earnings for the quarter were $4.16 per share. For the first nine
months of 2006, net income was $643 million, or $9.17 per share,
compared to net income of $438 million, or $6.23 per share, for the
nine months ending September 30, 2005.
The company set a new throughput record this quarter of 574,000
barrels per day which was 15,000 barrels a day greater than the
previous record. The company's refineries in California, Alaska,
Washington and North Dakota each achieved record throughput for an
individual quarter.
"Over the past 12 months, five of our six refineries have recorded
quarterly record throughput rates. This is just one of many
improvements that have contributed to our strong financial performance
and allowed us to surpass in the third quarter many of our 2005 annual
records," said Bruce A. Smith, Tesoro's Chairman, President and CEO.
Operating income for the first nine months of 2006 was $1.1 billion,
surpassing the company's 2005 full year operating income.
Operating income for the quarter was up 14% or over $50 million
versus the third quarter of 2005, despite West Coast crack spreads
that were down 15%. This improvement reflects higher reliability and
better optimization of the company's assets through sourcing crude
oils with the best refining value and moving the products into the
right markets. In addition, gross profit margins and capture rates
were higher due to a more stable margin environment. As compared to
the hurricane-driven volatility of last year's third quarter, the
relative stability this year resulted in higher wholesale market
spreads and better realizations of the benchmark crack spread.
Capital spending for the first nine months of 2006 was
approximately $345 million, of which $59 million was for turnaround
expenditures. For the year, the company anticipates capital spending
of between $550 and $575 million. The company expects capital spending
for 2007 to be between $550 and $650 million including turnarounds.
The Golden Eagle coker modification project is now expected to cost
between $475 and $525 million and the startup has been deferred to
early 2008. Higher raw material costs and limited engineering and
construction resources continue to pressure project costs.
In addition, the company purchased roughly 815,000 shares of its
common stock for $51 million during the quarter. Year to date through
the third quarter, the company has purchased 2.1 million shares for
$135 million.
Looking at the immediate quarter, two factors will impact
profitability - normal seasonal demand shifts and the Anacortes
turnaround. While the seasonal demand shift is expected to be typical,
the fundamental outlook remains bullish for product demand in 2007.
Gasoline inventories on the West Coast are low relative to the
five-year average heading into a busy turnaround season that is
expected to extend into the first quarter of next year. In addition,
immediate relief for the industry's need to import high octane
blending components required to produce West Coast gasoline seems
unlikely in the near-term. These factors should provide support for a
strong West Coast margin environment in 2007.
"Our employees continue to excel in achieving throughput records
through safe and reliable performance. Given each and every employee's
commitment to operational excellence, along with our belief that
historically strong margins will persist, we expect to continue
delivering significant value growth for our shareholders," said Smith.
Board Declares Quarterly Dividend
Tesoro announced today that its Board of Directors has approved a
regular quarterly cash dividend of $0.10 per share. The dividend is
payable December 15, 2006 to shareholders of record as of December 1,
2006.
Public Invited to Listen to Analyst Conference Call via Internet
At 3:00 p.m., CST, Thursday, November 2nd, 2006, Tesoro will
broadcast, live, its conference call with analysts regarding third
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 over 450 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 Nine Months Ended
September 30, September 30,
------------------ -----------------
2006 2005 2006 2005
--------- -------- -------- --------
Revenues $5,278 $5,017 $14,084 $12,221
Costs and Expenses:
Costs of sales and operating
expenses 4,697 4,536 12,662 11,134
Selling, general and
administrative expenses (a) 41 41 126 143
Depreciation and amortization 63 44 183 128
Loss on asset disposals and
impairments (b) 31 4 43 9
--------- -------- -------- --------
Operating Income 446 392 1,070 807
Interest and Financing Costs (c) (19) (30) (60) (94)
Interest Income and Other 15 5 32 6
--------- -------- -------- --------
Earnings Before Income
Taxes 442 367 1,042 719
Income Tax Provision 168 141 399 281
--------- -------- -------- --------
Net Earnings $274 $226 $643 $438
========= ======== ======== ========
Net Earnings Per Share:
Basic $4.02 $3.29 $9.43 $6.45
Diluted $3.92 $3.20 $9.17 $6.23
Weighted Average Common
Shares:
Basic 68.1 68.7 68.2 67.9
Diluted 69.9 70.7 70.1 70.3
- ----------------------------
(a) During the nine months ended September 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) During the three months ended September 30, 2006, the Company
recorded charges totaling $27 million related to the termination of
the delayed coker project at our Washington refinery.
(c) 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 Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
2006 2005 2006 2005
------- ------- ------- -------
Net Earnings - U.S. GAAP $ 274 $ 226 $ 643 $ 438
Special Items, After-tax:
Delayed coker project
termination costs (b) 17 - 17 -
Termination and retirement
costs (a) - - - 6
Debt prepayment and
financing costs (c) - - - 2
------- ------- ------- -------
Net Earnings Adjusted for
Special Items $ 291 $ 226 $ 660 $ 446
======= ======= ======= =======
Net Earnings Per Share - U.S.
GAAP $ 3.92 $ 3.20 $ 9.17 $ 6.23
Special Items Per Share,
After-tax:
Delayed coker project
termination costs (b) 0.24 - 0.24 -
Termination and retirement
costs (a) - - - 0.08
Debt prepayment and
financing costs (c) - - - 0.03
------- ------- ------- -------
Net Earnings Per Share
Adjusted for Special Items $ 4.16 $ 3.20 $ 9.41 $ 6.34
======= ======= ======= =======
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 Nine Months
Ended Ended
September 30, September 30,
------------- ---------------
2006 2005 2006 2005
------ ----- ------ -------
Operating Income (Loss)
Refining (b) $ 474 $ 434 $ 1,192 $ 947
Retail 3 (10) (21) (30)
------ ----- ------ -------
Total Segment
Operating Income 477 424 1,171 917
Corporate and Unallocated
Costs (31) (32) (101) (110)
------ ----- ------ -------
Operating Income 446 392 1,070 807
Interest and Financing
Costs (c) (19) (30) (60) (94)
Interest Income and Other 15 5 32 6
------ ----- ------ -------
Earnings Before Income
Taxes $ 442 $ 367 $ 1,042 $ 719
====== ===== ====== =======
Depreciation and
Amortization
Refining $ 56 $ 37 $ 164 $ 109
Retail 4 5 12 13
Corporate 3 2 7 6
------ ----- ------ -------
Depreciation and
Amortization $ 63 $ 44 $ 183 $ 128
====== ===== ====== =======
-
Capital Additions
Refining $ 99 $ 49 $ 242 $ 134
Retail 3 2 4 3
Corporate 32 3 40 33
------ ----- ------ -------
Capital Additions $ 134 $ 54 $ 286 $ 170
====== ===== ====== =======
BALANCE SHEET DATA
(Unaudited)
(Dollars in millions)
September 30, December 31,
2006 2005
-------------- ---------------
Cash and Cash Equivalents $ 886 $ 440
Total Assets $ 5,946 $ 5,097
Total Debt $ 1,044 $ 1,047
Total Stockholders' Equity $ 2,425 $ 1,887
Total Debt to Capitalization Ratio 30% 36%
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------- --------------
2006 2005 2006 2005
------ ------ ------ ------
REFINING SEGMENT
Total Refining Segment
Throughput (thousand barrels
per day)
Heavy crude 274 259 269 265
Light crude 277 281 250 240
Other feedstocks 23 19 19 21
------ ------ ------ ------
Total Throughput 574 559 538 526
====== ====== ====== ======
Yield (thousand barrels per
day)
Gasoline and gasoline
blendstocks 262 260 251 247
Jet fuel 75 73 70 68
Diesel fuel 139 129 123 116
Heavy oils, residual
products, internally
produced fuel and other 117 116 115 114
------ ------ ------ ------
Total Yield 593 578 559 545
====== ====== ====== ======
Refining Margin ($/throughput
bbl) (d)
Gross $15.25 $13.87 $14.09 $12.02
Manufacturing cost before
depreciation and
amortization (d) $ 3.32 $ 3.25 $ 3.47 $ 3.38
Segment Operating Income
($ millions)
Gross refining margin (after
inventory changes) (e) $ 786 $ 696 $2,039 $1,703
Expenses
Manufacturing costs 175 167 510 485
Other operating expenses 45 49 122 136
Selling, general and
administrative 6 7 16 21
Depreciation and
amortization (f) 56 37 164 109
Loss on asset disposals
and impairments 30 2 35 5
------ ------ ------ ------
Segment Operating
Income $ 474 $ 434 $1,192 $ 947
====== ====== ====== ======
Product Sales (thousand
barrels per day) (g)
Gasoline and gasoline
blendstocks 301 310 284 295
Jet fuel 96 106 92 101
Diesel fuel 136 154 131 140
Heavy oils, residual
products and other 93 80 86 75
------ ------ ------ ------
Total Product Sales 626 650 593 611
====== ====== ====== ======
Product Sales Margin
($/barrel) (g)
Average sales price $87.33 $79.98 $83.94 $69.30
Average costs of sales 74.95 67.79 71.82 58.88
------ ------ ------ ------
Product Sales Margin $12.38 $12.19 $12.12 $10.42
====== ====== ====== ======
- ---------------
(d) 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.
(e) 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.
(f) Includes manufacturing depreciation and amortization per
throughput barrel of approximately $0.97 and $0.64 for the three
months ended September 30, 2006 and 2005, respectively, and $1.03
and $0.68 for the nine months ended September 30, 2006 and 2005,
respectively.
(g) Sources of total product sales include products manufactured
at the refineries, products drawn from inventory balances and
products purchased from third parties. Total product sales margin
includes margins on sales of manufactured and purchased products
and the effects of inventory changes. Total product sales were
reduced by 33 Mbpd and 25 Mbpd in the three months and nine
months ended September 30, 2006 , respectively, as a result of
recording certain purchases and sales transactions with the same
counterparty on a net basis beginning in the 2006 first quarter
upon adoption of EITF Issue No. 04-13, "Accounting for Purchases
and Sales of Inventory with the Same Counterparty."
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------- ---------------
2006 2005 2006 2005
------ ------ ------- ------
Refining By Region
California (h)
Throughput (thousand barrels per
day)
Heavy crude 160 146 153 149
Light crude 4 15 3 7
Other feedstocks 9 8 8 7
------ ------ ------- ------
Total Throughput 173 169 164 163
====== ====== ======= ======
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 97 96 96 92
Diesel fuel 54 51 46 48
Heavy oils, residual products,
internally produced fuel and other 31 31 32 31
------ ------ ------- ------
Total Yield 182 178 174 171
====== ====== ======= ======
Refining Margin ($/throughput bbl)
Gross $19.65 $20.51 $19.98 $18.88
Manufacturing cost before
depreciation and amortization $ 5.23 $ 5.33 $5.59 $ 5.39
Pacific Northwest (Alaska &
Washington) (h)
Throughput (thousand barrels per
day)
Heavy crude 82 83 88 87
Light crude 103 98 81 74
Other feedstocks 8 6 6 9
------ ------ ------- ------
Total Throughput 193 187 175 170
====== ====== ======= ======
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 79 81 73 74
Jet fuel 36 33 31 32
Diesel fuel 37 32 30 24
Heavy oils, residual products,
internally produced fuel and other 46 46 46 45
------ ------ ------- ------
Total Yield 198 192 180 175
====== ====== ======= ======
Refining Margin ($/throughput bbl)
Gross $12.15 $12.87 $11.94 $10.33
Manufacturing cost before
depreciation and amortization $ 2.56 $ 2.52 $2.69 $ 2.67
Mid-Pacific (Hawaii) (h)
Throughput (thousand barrels per
day)
Heavy crude 32 30 28 29
Light crude 57 57 59 51
------ ------ ------- ------
Total Throughput 89 87 87 80
====== ====== ======= ======
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 21 20 21 19
Jet fuel 27 28 28 25
Diesel fuel 14 13 14 12
Heavy oils, residual products,
internally produced fuel and other 28 28 26 26
------ ------ ------- ------
Total Yield 90 89 89 82
====== ====== ======= ======
Refining Margin ($/throughput bbl)
Gross $ 9.31 $ 5.60 $6.67 $ 5.39
Manufacturing cost before
depreciation and amortization $ 1.85 $ 1.75 $1.73 $ 1.94
-
- -----------------------------------
(h) 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 Nine Months
Ended September Ended September
30, 30,
----------------- -------------------
2006 2005 2006 2005
-------- ------- --------- --------
Mid-Continent (North Dakota
& Utah) (h)
Throughput (thousand
barrels per day)
Light crude 113 111 107 108
Other feedstocks 6 5 5 5
-------- ------- --------- --------
Total Throughput 119 116 112 113
======== ======= ========= ========
Yield (thousand barrels
per day)
Gasoline and gasoline
blendstocks 65 63 61 62
Jet fuel 12 12 11 11
Diesel fuel 34 33 33 32
Heavy oils, residual
products, internally
produced fuel and
other 12 11 11 12
-------- ------- --------- --------
Total Yield 123 119 116 117
======== ======= ========= ========
Refining Margin
($/throughput bbl)
Gross $ 17.84 $ 11.98 $ 14.69 $ 9.26
Manufacturing cost
before depreciation
and amortization $ 2.90 $ 2.55 $ 2.93 $ 2.57
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- --------------
2006 2005 2006 2005
------ ------ ------ -------
RETAIL SEGMENT
Number of Stations (end of period)
Company-operated 194 211 194 211
Branded jobber/dealer 262 274 262 274
------ ------ ------ -------
Total Stations 456 485 456 485
====== ====== ====== =======
Average Stations (during period)
Company-operated 202 212 207 213
Branded jobber/dealer 260 278 260 285
------ ------ ------ -------
Total Average Retail Stations 462 490 467 498
====== ====== ====== =======
Fuel Sales (millions of gallons)
Company-operated 66 67 189 199
Branded jobber/dealer 51 54 138 150
------ ------ ------ -------
Total Fuel Sales 117 121 327 349
====== ====== ====== =======
Fuel Margin ($/gallon) (i) $ 0.22 $ 0.12 $ 0.16 $ 0.13
Merchandise Sales ($ millions) $ 38 $ 39 $ 108 $ 104
Merchandise Margin ($ millions) $ 11 $ 10 $ 29 $ 27
Merchandise Margin % 29% 26% 27% 26%
Segment Operating Income (Loss)
($ millions)
Gross Margins
Fuel (j) $ 26 $ 15 $ 52 $ 45
Merchandise and other non-fuel
margin 11 11 31 29
------ ------ ------ -------
Total Gross Margins 37 26 83 74
Expenses
Operating expenses 22 24 67 68
Selling, general and administrative 7 5 19 19
Depreciation and amortization 4 5 12 13
Loss on asset disposals and
impairments 1 2 6 4
------ ------ ------ -------
Segment Operating Income (Loss) $ 3 $ (10) $ (21)$ (30)
====== ====== ====== =======
- ------------------
(i) 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.
(j) Includes the effect of intersegment purchases from the refining
segment at prices which approximate market.
CONTACT: Tesoro Corporation, San Antonio
Investors:
Scott Phipps, Manager, Investor Relations, 210-283-2882
or
Media:
Natalie Silva, Manager, Public Relations, 210-283-2729