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RE: Tesoro Corp 4Q07 Loss – due Crude prices & Hawaii outage

Home Forums Refining Community Refinery News Tesoro Corp 4Q07 Loss – due Crude prices & Hawaii outage RE: Tesoro Corp 4Q07 Loss – due Crude prices & Hawaii outage

#7071

Charles Randall
Participant

Tesoro suffered a loss in 4Q07 as crude prices cut into its profits & Hawaii reformer outage caused $30 million loss (plus $10 million for repair/maintenance).  This was second quarter to have loss – which is good example to use on all buttheads that keep claiming refiners plan outages to keep prices high so they can bank big profits ….. unfortunately type folks that say this kind stupidity have lobotomies/atropy on side brain that contains reason & logic.
 
Both Tesoro and Valero are Independent refiners that have neither integrated crude supply nor strong dedicated crude supply agreements and during periods of short supply & high prices pay the spot market risk for that position – especially at refineries like Hawaii that must use the sweet crude that is at the high end of the spectrum. Additionally few of Tesoro 7 refineries have complexities ranking higher than Simple / Hydroskimming – a couple qualify as Complex / Cracking and only 2 qualify as Very Complex/Coking (Golden Eagle – installing Delayed coker replacing fluid coker, and last refiner in Bay to still have atmos blowdown; and Wilmington refinery) the overall average of Tesoro’s 4.3 – 14.7 complexity is ~8.3 which is way below US average. 
 
Valero has been in news recently trying to sell several refineries Aruba (7 complexity – coker but no FCC or Reformer), Memphis (6.7 complexity), Krotz Springs (6.6), Houston (9.6) and Ardmore (9.6) which are all below average US complexities.  Low complexity refineries cannot take advantage (generally) of the large delta between sweet crude price and the heavy sour crude price nor are they able to shift any heavy crude they do process into higher valued LS gasoline/diesel fuels without a large investment.
 
Low complexity – Sweet Crude refineries, even with Niche markets like Hawaii, become an anchor on Refiner’s profitability, and since all US refineries are universally “old” (+60 years) the lower margins on these type refineries cannot bear the weight of increasing number of outages from unit failures / accidents / fires that you see at the far end of old plants operation (even taking into account most units are either new or replaced over the years – weakest link still determines operational run times).  So high crude prices & product prices may let these type refineries keep doors open – but don’t look for lot profit and if they don’t have near term plans for serious sour crude / bottoms upgrading consider them as shutdown targets. Just because Tesoro & Valero were able to purchase refineries at cost that were only $0.10-60/$1 replacement cost……doesn’t mean they get to stay & operate there (as you can clearly see on all big, very complex refineries that Valero did target for acquisition – rest smaller ones, as in Premcor purchase, were just included with the pot). Selling at top market value for them is just good business and not upgrading or not selling isn’t.
 
These type refineries also suffer the most when the stock market “Mutual fund traders” play the crude & products futures markets as it appears happened in 2007 – high crude price was not supported by fundamentals (and wasn’t all risk & fear premiums – that is cover story) because the fuel demand was down and the $2.5 – 2.90/gal price didn’t support a $90-100/Bbl crude price (also reason Tesoro was hit so hard). I am still hoping for market to take out this type speculation hedging which has always delt harshly in the past to someone playing volatility without physical barrels to back it up.
 
If it is any consolation to US refiners – China got big taste of this 4Q07 also; Government stopped exports & capped gasoline/diesel prices due rationing/inflation fears and all China “independents” had shut down because they couldn’t buy $100/B crude and sell it for $0.74-85/gal prices. And Sinopec & PetroChina government owned refiners who followed mandates had to get yet another “one-off” $CNY 30 billion baliout. <Doesn’t that reek of unfair trade practice and subsidy since this is the 4th year for the “one off” bailouts? >
Regards

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