Back to top

Analyst Blog

Independent refiner Tesoro Corporation (TSO - Analyst Report) has closed the divestment of its 100% ownership in Tesoro Hawaii LLC to a fully owned affiliate of Houston-based Par Petroleum Corporation.  

Tesoro Hawaii is the operator of Kapolei refinery, which has a refining capacity of 94,000 barrels per day and is also the owner of retail stations and related logistic properties.  

Tesoro has sold the asset for a consideration of roughly $325.0 million. The sale price also comprises an earn-out agreement of up to $40 million, which will be paid over a span of three years.

San Antonio, Texas-based Tesoro Corporation operates in two segments: Refining and Retail. The Refining segment manufactures and sells gasoline and gasoline-blend stocks, jet fuel, diesel fuel, and other refined products, primarily in the mid-continental and the western U.S. This segment also markets liquefied petroleum gas, petroleum coke and asphalt.

Tesoro Corporation is paying greater attention to improving business processes, reducing operating costs, enhancing the integration of the refining portfolio and investing in organic growth. The company is involved with a number of high-return projects that are expected to be cost effective. These projects will not only boost the company’s competitive position but will also provide significant earnings and cash flow growth visibility.

However, in an effort to reduce pollution, the Environmental Protection Agency (EPA) has recently outlined a proposal that would require refiners to reduce sulfur content in gasoline by 67% starting 2017. To comply with the new standards, Tesoro Corporation will have to increase its capital expenditure, which will adversely impact earnings and cash flow.

Tesoro Corporation currently retains a Zacks Rank #3 (Hold), implying that it is expected to be in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at energy firms like Magellan Midstream Partners LP (MMP - Analyst Report), Dril-Quip Inc. (DRQ - Analyst Report) and China Petroleum & Chemical Corp. (SNP - Analyst Report) that offer better prospects. All the stocks sport a Zacks Rank #1 (Strong Buy).

Please login to Zacks.com or register to post a comment.