Tesoro (TSO) Q2 2012 Earnings Call August 02, 2012 8:30 am ET Executives Louie Rubiola - Director of Investor Relations Gregory J. Goff - Chief Executive Officer, President and Director G. Scott Spendlove - Chief Financial Officer and Senior Vice President Daniel J. Porter - Former Senior Vice President of Refining Daniel Robert Romasko - Executive Vice President of Operations Analysts Paul Y. Cheng - Barclays Capital, Research Division Jeffrey A. Dietert - Simmons & Company International, Research Division Chi Chow - Macquarie Research Douglas Terreson - ISI Group Inc., Research Division Edward Westlake - Crédit Suisse AG, Research Division Evan Calio - Morgan Stanley, Research Division Fadel Gheit - Oppenheimer & Co. Inc., Research Division Arjun N. Murti - Goldman Sachs Group Inc., Research Division Roger D. Read - Wells Fargo Securities, LLC, Research Division Sam Margolin - Dahlman Rose & Company, LLC, Research Division Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division Faisel Khan - Citigroup Inc, Research Division Cory J. Garcia - Raymond James & Associates, Inc., Research Division Presentation Operator
Gregory J. GoffThank you, Louie. Good morning, everyone and thanks for taking the time to join us on the call today. You have our earnings release, and Scott will go over some of the details of the results in a moment. But I'm going to start with an overview of some recent highlights. Despite significant turnaround activity during the quarter, we delivered solid operating performance with refinery utilization of 87%. This allowed us to capture strong crack spreads and advantaged discounts on crude oil supply. We continued to reduce operating expenses with adjusted manufacturing costs of $4.69 per barrel. The combined result is reflected in our adjusted second quarter earnings of $2.87 per diluted share, and our quarter-end cash balance of over $1.3 billion. We also made significant progress on several strategic fronts during the quarter. We completed our North Dakota refinery expansion. And today, that refinery is running full at 68,000 barrels per day. That $35 million project is expected to generate over $80 million of annual EBITDA using an average 2011 price environment. If we look at margin so far this year, the annual EBITDA potential increases to about $100 million. And we expect to begin loading the first unit train of price and quality advantage Bakken crude oil destined for our Anacortes, Washington refinery later this month. Our rail and unloading facility with permitted capacity of 50,000 barrels per day is nearing the estimated early September completion. We continue to expect the new vacuum tower at our Wilmington, California refinery to be operational in the fourth quarter of this year, shifting just under 1 percentage point yield from low valued petroleum coke to light product production. These high return capital projects allow us to expand our advantage position in the Bakken and drive improvements in product yields. The end result is an enhanced competitive position for our refineries and the potential for significant growth in earnings and cash flow.
We also made meaningful progress on our refining and marketing integration with the addition of 165 stations in Southern California from Thrifty Oil Company.In the third quarter, we intend to add the remaining 9 stations to our retail system completing the Thrifty integration planned schedule for 2012. These additions, along with another 50 sites we expect to add in 2014, should provide between 20,000 and 25,000 barrels per day of ratable and profitable demand allowing us to sustain high refinery utilization. In addition, we completed the first IPO -- post-IPO asset sale to Tesoro Logistics early in the second quarter generating $75 million of incremental value and demonstrating our commitment to capturing the full value of our logistics assets. Yesterday, we announced our intent to sell the Long Beach marine terminal and pipeline assets to Tesoro Logistics in the third quarter. These assets support not only our Wilmington California refinery, but other third-party refineries as well. We also reaffirmed our intent to offer the Anacortes Washington rail and unloading facility to Tesoro Logistics. We expect that transaction to occur in the fourth quarter. The transactions we announced yesterday, which add between $35 million and $45 million of annual logistics EBITDA, combined with organic growth already underway at TLLP, will continue to grow the value of Tesoro's investments in these assets providing additional value to our shareholders. Read the rest of this transcript for free on seekingalpha.com