State reconsiders $24 million Tesoro debt; 21 jobs expected to be lost

Refinery to remain in operation

Posted: Thursday, May 04, 2000

Tesoro will continue to operate in Alaska.

That's the good news from Tesoro Petroleum Corporation's President and CEO Bruce A. Smith, who made the announcement Wednesday on the company's first-quarter 2000 earnings.

The bad news is that approximately 21 jobs and five retail stores will be eliminated, said Tesoro Alaska spokesperson Ron Noel.

In mid-February, after Tesoro reported a fourth-quarter loss from continuing operations of $23.6 million, Smith announced that a 60-day study would be conducted to determine the future of Tesoro's Alaska operations. On Wednesday, the company announced the results of that study.

"Market conditions in Alaska are fiercely competitive and product demand relatively seasonal," said Smith during Wednesday's announcement, which was broadcast over the World Wide Web. "Given this environment, the scope of the study was to determine whether we could identify ways to reduce our cost structure and tactics that could improve our marketing focus."

Teams of employees from Alaska and the company's headquarters in San Antonio, Texas, assisted by a consulting firm selected to provide objectivity and independence, looked for ways to increase Tesoro's financial returns. They considered closure, supplying products to Alaska from the Pacific Northwest and operating the refinery as a terminal.

"The study was recently presented to the board of directors along with our recommendation to continue to operate the refinery and marketing assets in Alaska," said Smith.

The recommendation included:

n Eliminating positions in Alaska by consolidating administrative and marketing functions into Tesoro's Auburn, Wash., offices;

n "Aggressively" closing additional under-performing retail facilities in Alaska; and

n Pursuing new marketing initiatives and processing ideas.

"We will immediately implement the cost-reduction programs and take the necessary first steps to have our other plans substantially in place by the end of the year," Smith said.

Of Tesoro's 500 Alaska employees, 170 are located at the Nikiski refinery.

Tesoro has 30 company-owned gas stations and convenience stores in Alaska and more than 150 independent stations selling Tesoro gasoline. One Tesoro store in Kenai is targeted to close by the end of the year.

In January, the Department of Natural Resources billed Tesoro $24 million in royalty payments, based on 16-year-old miscalculations, and $3 million for disputes relating to tariffs through Cook Inlet pipelines.

Several weeks ago, the state withdrew the $24 million bill, according to department commissioner John Shively

"We wanted to withdraw it and make sure it was correct," said Shively. "Basically, because it's so old, there are some issues about the bill that we are uncomfortable with. We wanted to withdraw it and make."

Shively said the state has reserved the right to resubmit the bill at a future date.

"The $3 million is still an issue," Shively said. "To my knowledge, (Tesoro) is contesting that."

Associated Press reporter Maureen Clark contributed to this report.

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