Tesoro Fined $2.39 Million for Blast at Refinery

Tesoro Corp. was fined $2.39 million by Washington regulators, the largest penalty for workplace safety violations in the history of the state, for an April 2 explosion at its Anacortes refinery that killed seven people.

Tesoro was cited for 39 “willful” violations and five “serious” violations of state workplace safety and health regulations, the Washington Department of Labor and Industries said in a press release today. The company could’ve prevented the accident, the agency said.

The findings are the result of a six-month investigation into the most deadly U.S. refinery accident since 2005, when 15 people were killed by an explosion at BP Plc’s Texas City, Texas, refinery. Tesoro, based in San Antonio, is the largest independent refiner on the U.S. West Coast.

“This explosion and the deaths of these men and women would never have occurred had Tesoro tested their equipment in a manner consistent with standard industry practices, their own policies and state regulations,” Judy Schurke, director of the state agency that oversees workplace safety and health, said in a statement.

The state’s findings are the first to be released from a number of investigations begun in the days after the blast, including an internal company probe and one by the Chemical Safety and Hazard Investigation Board, a federal agency. Both of those investigations are ongoing.

Company Review

“We have undertaken a review of the equipment and piping at the refinery,” Lynn Westfall, a spokesman for Tesoro, said in an e-mailed statement. “We are working hard for a safe resumption of operations at Anacortes.”

Tesoro has 15 business days to respond to the violations and appeal the ruling, Michael Silverstein, assistant director for the department, said in a press conference. If it chooses to appeal, the fines would be stayed while the case is heard, Silverstein said.

“Relative to how most of these accidents go, that seems like a fairly significant fine but not something that would be material to the firm,” said Roger Read, an analyst with Natixis Bleichroeder LLC in Houston who has a hold rating on the shares and doesn’t own any. “Between insurance, cash on hand, cash flow, they should be able to absorb a fine of that size.”

The greater damage to Tesoro’s balance sheet has been the shutdown of the Anacortes refinery since the blast, Read said in a telephone interview.

Permission to Operate

The refinery, capable of handling 125,000 barrels a day, was shut after the explosion damaged crude-processing equipment. Tesoro must address the violations at the plant to get permission to operate, Silverstein said.

Westfall wouldn’t comment on when the refinery may restart, saying the company would need time to look through the violations cited by the state. He also declined to comment on whether the company would appeal the fine.

The Anacortes blast was caused by the rupture of a 30-foot-long cylinder known as a heat exchanger, releasing vapor that ignited, the state investigation found. The heat exchangers had a long history of leaking, Silverstein said in the press conference.

Five percent of U.S. refineries have had significant incidents in the last two years, Robert Hall, the Chemical Safety Board’s lead Anacortes investigator, said on April 5.

The Chemical Safety Board is currently investigating incidents at six other refineries, including a January 2008 explosion at BP’s Texas City refinery that killed one worker and an explosion at Silver Eagle Refining Inc.’s Woods Cross, Utah, refinery, according to its website.

Refinery Violations

Tesoro is the subject of a separate ongoing Chemical Safety Board investigation into an Oct. 21 fire at its Salt Lake City refinery.

The Anacortes refinery was cited for 17 “serious” violations last year, according to the federal government’s Occupational Safety and Health Administration. Fourteen were dismissed during settlement negotiations and fines were reduced to $13,850 from an initial $85,700 proposed penalty.

The plant, located about 60 miles (96 kilometers) north of Seattle, makes gasoline, jet fuel and diesel for markets in Washington and Oregon.

Tesoro fell 23 cents, or 1.7 percent, to $13.18 at 4:15 p.m. in composite trading on the New York Stock Exchange. The shares have fallen 3.2 percent since the April 2 explosion.

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