Tesoro Alaska hoping for continued market stability

Posted: Saturday, March 02, 2002

Tesoro Alaska plans to maintain the economic viability it reattained in 2000 after the downturn the company's earnings took in 1999. Changes made in 2000 meant 2001 was more than a rebound year for the company, and operations continue to ensure the status quo at the Nikiski refinery.

"1999 was just an unusually bad year in terms of refining margins. We did do some restructuring on the administration side and in retail, but that is all behind us now. The long-term future is looking real solid," said Ron Noel, vice president and general counsel for Tesoro.

The restructuring involved a two-month review of Tesoro's future in Alaska that ended in a decision to continue operations in the state. While the company did close down retail outlets on the Kenai Peninsula and throughout the state, the Nikiski refinery remained essentially untouched.

The survival of all 175 jobs was perhaps advantageous in light of the recent discoveries of additional oil reserves in Cook Inlet. The Nikiski refinery, built in 1969, purchases all of its crude oil in the inlet, said Noel, and he sees the uncovering of this oil as one of the biggest things to happen for Tesoro in 2001.

Tesoro Alaska at a glance

Company headquarters: San Antonio, Texas

Alaska Tesoro President: Gene Burden

Number of employees: 175 at the Nikiski refinery

2001 production: 50,000 barrels a day

Capital expenditures in 2001: $12 million through Nov. 2001

Local contact: 776-8191

Web site: www.tesoropetroleum.com

Company outlook: In 2001, Tesoro Alaska maintained economic stability it reattained in 2000 after company restructuring in 1999.

"It looks like a jump in production, and what is good for the state is good for the producers," Noel said. "It is nice to have high quality crude oil in their back yard."

Tesoro takes that high quality crude and turns it into what Noel said is the cleanest gasoline refined in the United States. Gasoline produced by Tesoro meets guidelines and requirements that will be enforced until 2006, he said.

One of the company's goals for 2001 was to increase marketing of its gasoline, focusing on the advantages of burning a cleaner fuel.

Tesoro's marketing plans led to forming an agreement with Wal-Mart that allowed Tesoro to lease land in the parking lots of Wal-Marts throughout the Lower 48. It now owns and operates gas stations and convenience kiosks at many Wal-Marts and has plans to expand this idea to Wal-Marts in Alaska. In addition, Tesoro now sells gasoline to similar stations at other stores, such as sites at the two Costcos in Anchorage.

Noel said the new trend of combining established retail chains with gas stations has injected some additional competition to the market.

Despite what may be a fairly saturated market, Tesoro continues to hold on to its role as one of Ted Stevens Anchorage International Airport's only two suppliers of jet fuel. The Nikiski refinery, which puts out 50,000 barrels per day, plays a role in this. Most of the gasoline, diesel and jet fuel is shipped from the refinery through a 10-inch pipeline to Anchorage, and a spur of the pipeline carries the jet fuel to the airport.

The company's position in the market, however, does not erase the fact that there are some odd things going on in the economy as far as gasoline sales are concerned. Prices continue to vary greatly from state to state and city to city -- some retailers are even selling gasoline at prices below cost, according to Noel.

Still, Tesoro is looking to build a couple of new convenience stores in the near future, probably in the Anchorage bowl and Matanuska Valley regions, and corporate offices moved into a new building in Anchorage in the spring of 2001.

Although, Tesoro may not have any major capital plans in the works and the Nikiski refinery isn't going to be expanded, the company is planning to sustain the capital it has rebuilt since the downturn in 1999. As far as operations in Nikiski are concerned, Noel said, things are run as lean and economically as they can be.

"It would be fair to say that we had a good solid year and we are hoping to build on that."

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