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SAN ANTONIO -- Just weeks after closing on a deal to acquire a California refinery and 70 convenience stores from Valero Energy Corp., Tesoro Petroleum Corp. revealed plans to sell off some convenience stores, pipelines and other assets, make significant job cuts, and reduce spending as part of an effort to sharply reduce debt.
The independent refiner said it hopes the effort will allow it to cut its debt load by $500 million by the end of 2003, balancing a string of costly acquisitions that fostered concern on Wall Street over the company's bottom line.
"Our first priority is to strengthen our balance sheet -- immediately," said Bruce Smith, president and CEO of Tesoro.
Energy consultant Philip K. Verleger Jr., president of PKVerleger LLC, told Convenience Store News that Tesoro is poised to become one of the top independent refiners in the country if it could strengthen its balance sheet and avoid mounting debt.
Tesoro's debt-reduction effort includes plans to raise roughly $200 million through the sale of crude oil and products pipelines around its Mandan, N.D., refinery and the 70 stores it acquired from Valero for $1 billion in May.
Smith said he has identified a number of potential buyers for the assets and expects to complete deals for them by the end of this year.
Tesoro said it also plans to lay off a significant number of contract workers -- many hired during the company's spate of acquisitions -- as part of a plan to reduce costs in manufacturing and retail by $75 million by the end of 2003.
"We have grown so rapidly, a lot of our growth has been supported by contract service employees," said Smith. "Our first job in right-sizing is to start to rationalize our structure and it will start with contract service employees."
The total number of job cuts was not yet determined, but Tesoro is reviewing positions that could be streamlined, a company official said.
Tesoro added it will implement a $200-million capital spending reduction program, with much of the reduction coming from its refinery turnaround budget, and raise roughly $35 million through synergies from its recently acquired Golden Eagle refinery in California.
Tesoro operates six refineries in the western United States with a combined capacity of nearly 560,000 barrels per day and markets fuel at more than 750 branded retail stations.