Tesoro Posts Unexpected Loss as U.S. Crude Discount Shrinks
Tesoro Corp. (TSO), the largest independent refiner on the U.S. West Coast, said it lost 55 cents to 80 cents a share in the fourth quarter, missing analysts’ estimates of profit, as discounts for U.S. crude oil shrank. The shares plunged.
Hedging on derivatives and inventory challenges may have contributed to the loss, Mark Gilman, an analyst with Benchmark Co. LLC in New York, said in a telephone interview today. Gilman, who projected earnings of $1.99 a share, said the factors Tesoro cited were not a surprise to analysts.
“In the margin environment that was in place in the fourth quarter, they should have been profitable,” he said.
Tina Barbee, a Tesoro spokeswoman, declined to comment. The company had $112 million of hedging gains in the third quarter, Chief Financial Officer Scott Spendlove said in a Nov. 3 earnings call with analysts.
Prices for West Texas Intermediate crude, the U.S. benchmark, and heavy California crude increased in the quarter, causing losses in California and narrowing margins elsewhere, San Antonio-based Tesoro said today in a statement. Analysts projected net income of 73 cents a share, the average of nine estimates compiled by Bloomberg.
Valero Energy Corp. (VLO) and Marathon Petroleum Corp. are expected to report similar challenges related to higher crude prices, said Cory Garcia, a Houston-based analyst for Raymond James & Associates.
“This paints a much bleaker picture for refiners all over the country,” he said today in an interview. “No one thought there would be a loss.”
Tesoro fell 5.9 percent to close at $22.60 in New York. The Standard & Poor’s 500 Oil & Gas Refining & Marketing Index (S5OILR), which includes Tesoro and three other refiners, fell 3.9 percent to $204.16.
The loss follows a six-fold rise in profit in the third quarter as Tesoro benefited from discounts on U.S. crude to the price of the global benchmark Brent crude. The spread between Brent and WTI narrowed to $8 a barrel from $26 a barrel at the end of the third quarter, Tesoro said.
“There’s another element to what happened here,” Sam Margolin, an analyst with Global Hunter Securities LLC, said in an interview today. “The results were spectacularly bad in California.”
Tesoro operates seven refineries in the western U.S. with combined capacity of 665,000 barrels a day, according to its website. Its two California refineries account for 40 percent of capacity.
Prices for California crude were “unusually high,” Tesoro said. The heavy oil traded at a discount of $1 a barrel to Brent in the fourth quarter, compared with $7 a barrel a year earlier and $12 a barrel in the previous quarter.
The margin (CRKS321A) between how much West Coast refiners pay for oil and the price at which they sell fuel to consumers reached negative 65 cents Nov. 25, a record low, according to data compiled by Bloomberg.
Analysts failed to predict the impact of higher prices for California oil because sales of the heavy crude that crimped Tesoro’s earnings are difficult to track, said Raymond James’s Garcia.
A season of near-record profits for independent refiners in 2011 driven by lower-priced crude may have come to an abrupt end, said Fadel Gheit, an analyst with Oppenheimer & Co.
For refiners, “2011 was an anomaly,” he said in a telephone interview today. “It will never be repeated. Refineries are shutting down in the U.S. and in Europe-- they cannot compete.”
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