Tesoro Alaska on the rebound

Posted: Thursday, March 01, 2001

Tesoro Alaska is on the financial rebound after a disastrous earnings year in 1999 forced the company to take a hard look at its operations, resulting in several changes implemented last year.

Those restructuring changes, along with other market factors, made 2000 a profitable year for Alaska operations, said Ron Noel, vice president and general counsel for Tesoro.

In February 2000, Tesoro Petroleum Corp. President and CEO Bruce Smith called for a 60-day review to determine the future of Tesoro's Alaska operations. That announcement came on the heels of a 1999 fourth-quarter loss of $23 million and an overall 3 percent return on capital employed in the state. The initial review looked at cost-cutting measures, including the possible closure of the company's Nikiski refinery.

To make matters worse in early 2000, the state Department of Natural Resources sent Tesoro a $24 million bill for royalty payments based on 16-year-old calculations as well as $3 million for disputes concerning Cook Inlet pipeline tariffs. The state later withdrew the bill for $24 million, and Tesoro continues to dispute the $3 million.

When the dust had settled, company changes ranged from consolidating administrative functions, closing under-performing retail stores and pursuing new processing ideas and marketing.


San Antonio, Texas

Alaska manager:

Steve Wormington

Employees: 175 at Nikiski refinery

Production in 2000:

50,000 barrels of fuel per day at refinery

Local phone:


Web site:


Outlook for 2001:

The Nikiski refinery was unaffected by corporate restructuring efforts in 2000. Future marketing efforts aim to target the refinerys

low-sulfur fuel.

In the plan, 21 jobs and five retail stores were eliminated, including the closure in December of one Tesoro outlet in Kenai. The Nikiski refinery, where 175 of Tesoro's roughly 500 statewide employees are located, did not suffer any cuts.

"All in all, 2000 was a profitable year for us," Noel said. "We were able to make some changes, and the decision was made to continue our commitment to Alaska."

Noel said part of the restructuring effort involved a new lease for its Ketchikan terminal, the sale of Interior Fuels in Fairbanks as well as the relocation of accounting and other administrative functions into Tesoro's Auburn, Wash., offices.

Tesoro currently has 30 company-owned fuel and convenience stores in the state and 145 independent stations selling its fuel, Noel said.

"With the restructuring, we closed some and picked up others," Noel said, citing new stores in Anchorage and Eagle River and the purchase of Fisher Fuels and Seward Meridian in the Palmer-Wasilla area.

He added the company is still looking at other stations on the Kenai Peninsula that could be targeted for closure.

Noel said the Nikiski refinery, built in 1969, will not see any significant capital improvements in 2001.

"That's a pretty lean operation," Noel said. "Plans are to continue to put sustainable capital into the operations. That's basically maintenance."

Refinery output totals around 50,000 barrels per day, which includes regular gasoline, diesel and jet fuel. Tesoro ships much of the gasoline, diesel and jet fuel from the refinery through a 10-inch pipeline to Anchorage. A spur of the pipeline carries jet fuel to storage tanks at the Ted Stevens Anchorage International Airport.

Noel added that company marketing initiative planned for 2001 included promoting the refinery's processing methods.

"That is the most sophisticated refinery in Alaska," Noel said. "And by the nature of the refining process, it produces a very low-sulfur gas. That grade of fuel is meeting regulations that will not be in effect until 2006."

As for the future, Noel said, the Alaska market is always a challenge.

"We're feeling much better. We're doing better than we were in 1999," Noel said. "On a day-to-day basis, Alaska is a tough marketplace."

He pointed to the latest trend of new retail gasoline outlets emerging at supermarkets like Fred Meyer as another market factor likely to have significant effect over time. He said Safeway also plans a similar foray into the retail fuel market.

"In think in 2001 we will continue to see increased sales of retail gas by the big stores like Fred Meyer," Noel said. "And these large-volume retailers will have a significant effect on the market. Retail gas sales is a tough market -- especially on the peninsula. It's very seasonal. I certainly think time will tell."

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