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Tesoro to Convert Hawaii Refinery

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San Antonio-based Tesoro Corporation recently announced that it will shut down refinery operations at its Kapolei, Hawaii refinery this April. Tesoro intends to convert it into an import, storage and distribution terminal.

The Hawaii refinery has a capacity of about 94,000 barrels a day and is one of the largest in the state. Around 200 positions will be affected due to the closure of the same.

The existing distribution system will be operated by Tesoro to continue marketing operations and accomplish its supply commitments. The company plans to sell its terminal, distribution and retail assets. After the conversion of the refinery, Tesoro expects the terminal and associated logistics to simplify the delivery of refined products.

The cost of conversion is estimated at $1.00–$1.10 per share, including asset impairment and retirement charges. As a result of this conversion, Tesoro expects to realize $300 million to $350 million in cash by the end of 2013 out of working capital requirements.

Texas-based Tesoro Corporation is an independent refiner and marketer of refined petroleum products in western U.S. The company 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 to customers, primarily in the mid-continental and western U.S. This segment also markets liquefied petroleum gas, petroleum coke and asphalt.

We maintain our long-term Outperform recommendation on the stock, supported by a Zacks Rank #2 (short-term Buy rating).

Tesoro is one of the largest independent oil refiners in the U.S. with a combined crude oil processing capacity of approximately 675,000 Bbl/d. A major advantage for the company is the scale and diversification benefits afforded by its portfolio of seven refineries.

Our positive stance also revolves around Tesoro’s proposed acquisition of BP Plc’s (BP - Free Report) Southern California refinery, which, apart from boosting refinery capacity, will also improve the company’s operational efficiency.

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