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Tesoro Penalized For Refinery Explosion

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The Washington State Department of Labor & Industries (“L&I”) imposed a hefty fine of $2.39 million on Tesoro Corporation for the April 2, 2010, deadly explosion at the company’s Anacortes refinery.

The state government commentated that the blast, which killed seven workers, could have been avoided. After a six month long investigation, the Washington sate regulators concluded that Tesoro’s indifferent and careless attitude caused the mishap.

Tesoro has been held responsible for 39 “willful” violations for neglecting fixation of safety problems and 5 "serious" violations resulting in probable serious injury or death.

The Anacortes refinery, located to the north of Seattle, was shut down after the disaster. This refinery has a total crude-oil capacity of 120,000 barrels per day, and primarily supplies gasoline, jet fuel and diesel to markets in Washington and Oregon. It also produces heavy fuel oils, liquefied petroleum gas and asphalt.

Tesoro will have to address the violations at the plant in order to get permission for restarting operations at the refinery. The company has 15 days to file an appeal.

A Federal agency, the Chemical Safety and Hazard Investigation board, is also conducting an investigation of the accident, while Tesoro is carrying out an internal probe. The results of both the investigations are yet to be disclosed.

In April, 2009, the state agency penalized Tesoro for 17 serious safety and health violations at the Anacortes refinery and was charged a fee of $85,700. In November, following a settlement negotiation, the state reduced the total fine to $12,250 and dismissed 14 charges.

The closure of the Anacortes refinery will result in lower production in the coming quarter. We also believe that the company’s share prices will be negatively affected until the case is resolved.

Our long- term Neutral rating on the stock reflects the company's strong portfolio of seven refineries, growth opportunities along the West Coast region, and the company’s strategic initiatives, partly offset by a weak outlook for domestic refiners and lack of geographically diverse operations.

Tesoro currently retains a Zacks #3 Rank (short-term Hold rating).

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