Tesoro Corporation (TSO)
Q4 2009 Earnings Call Transcript
February 3, 2010 8:30 a.m., ET

Executives

Scott Phipps - Managing Director, Finance & Investor Relations,
Bruce A. Smith - Chairman, President and Chief Executive Officer
Lynn D. Westfall – Senior Vice President, External Affairs & Chief Economist
Daniel J. Porter - Senior Vice President, Refining
Chuck Flag - Senior Vice President, System Optimization

Analysts

Paul Sankey - Deutsche Bank
Evan Calio - Morgan Stanley
Arjun Murti - Goldman Sachs
Neil McMahon - Sanford Bernstein
Doug Terreson - ISI
Ann Kohler - Caris & Company
Jeff Dietert - Simmons & Company International
Paul Cheng - Barclays Capital
Mark Gilman - The Benchmark Company

Presentation

Operator

Welcome to Tesoro''s Fourth Quarter Earnings Conference Call. My name is Christian [ph] and I will be your operator today. Following today''s prepared remarks, there will be a question-and-answer session. At this time, all lines have been placed on mute. Mr. Phipps, you may now begin your call.

Scott Phipps

Thank you, Christian. Well, good morning, everyone and welcome to today''s conference call to discuss our fourth quarter 2009 results. While management will not be referencing slides, we did file a presentation deck earlier with the SEC and encourage you to have these available as we progress through this morning''s call. These slides along with other financial results including the press release and our supplemental quarterly data can be found on our website at tsocorp.com.

After reviewing this information, please feel free to contact me with any questions about this material or otherwise following today''s call. Please refer to the forward-looking statements 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.

Before before Bruce''s comments, I’d like to offer guidance for the first quarter of 2010. Looking at throughput by region, in the Pacific Northwest, 115,000 to 125,000 barrels per day; in the Mid-Pacific 60,000 to 70,000 barrels per day; in the mid Continent region 90,000 to 100,000 barrels a day; and in the California region 195,000 to 205,000 barrels a day, which is roughly 30,000 barrels a day lower than our fourth quarter actuals due to maintenance at Golden Eagle on the cat cracker.

OpEx guidance for the first quarter is as follows, in the Pacific Northwest $4.85 per barrel; in the Mid-Pacific $3.15 per barrel; in Mid-Continent region $4.10 per barrel; and in California roughly $9.00 per barrel. Our depreciation for refining is estimated at $90 million. Additional first quarter guidance items include corporate expense of $45 million and interest expense before interest income of $38 million.

I''ll now turn the call over to Bruce.

Bruce A. Smith

Thanks, Scott and good morning to everyone. We appreciate you starting the day with our management team. Obviously, we are here to answer questions about the results for the fourth quarter, answer questions about the year and obviously talk about the release that we sent out yesterday. But before we do the Q&A portion of our call, I want to make a few general comments both about the quarter and also about how we see the current market environment.

I want to begin with a quick summary of some financial and some operational results. As Scott said last night we reported fourth quarter we lost $179 million or $1.30 a share. Those results include a $43 million charge for the impairment of the goodwill associated with our purchase of the Anacortes refinery in 1998. So if you exclude this non-cash non-taxable item, we reported a $0.99 per share loss which is generally in line with the consensus expectation.

While we are very, very disappointed about the results in these -- and the losses in the fourth quarter, we are not going to attempt today to try to put a positive spin on it, but the simple fact that the consensus was a negative says that results weren''t a surprise to you. Let me give you just a few facts.

The West Coast benchmark margins averaged about $8 a barrel in the fourth quarter or roughly half of what we saw in each of the first three quarters of the year. We can speculate about the reasons but they would certainly include seasonally lower demand and higher winter grade gasoline inventories.

In this weak environment, we reported a refining operating loss of $213 million. The marketing segment, however, continues to perform well. In the fourth quarter, operating income across all product channels was $100 million. Of that amount, retail contributed $41 million and for the full year, retail made $83 million.