Tesoro, Shell Both Earn Profits in Downstream Divisions

SAN ANTONIO and THE HAGUE, Netherlands -- Tesoro Corp.'s retail division posted higher net profits for its 2011 fiscal fourth quarter, compared to the same period in 2010. The petroleum retailer, which had 1,175 stores at the end of the year, including 376 company-operated stores, earned a net income of $27 million for its 2011 Q4. That compares to $11 million during Tesoro's 2010 Q4.

Broken down further, Tesoro's fuel sales totaled $384 million for the quarter, compared to $336 million during the same period last year. Tesoro's fuel margin per gallon also improved to 19 cents, compared to 17 cents, and merchandise margin increased to 28 percent from 27 percent during Q4 2010.

However, total merchandise sales at all stores dropped to $47 million. In 2010's Q4, Tesoro generated $49 million in that category and had 880 total stores.

During this morning's conference call, Tesoro announced that it's closed on the purchase of 49 SuperValu Inc. The stores, located in Washington, Oregon, California, Idaho, Utah and Wyoming, have become officially branded as Tesoro stations as of the end of January, the company reported.

Tesoro added that it will continue to look for acquisition opportunities, but said none were on the immediate horizon.

Plans for Tesoro to sell off its Hawaiian operations were also a hot topic during the conference call. Gregory Goff, Tesoro's CEO, said the sale of those operations, which includes 32 convenience stores, is expected to close in the second half of 2012, subject to regulatory approvals.

"Following a comprehensive analysis, we've determined that our business in Hawaii does not align with our strategic focus on the Mid-Continent and West Coast [of the United States]," said Goff. "While the Hawaii business is no longer in line with our vision for Tesoro's future, there is no question that it offers value for the right investor."

Regarding its complete operations, Tesoro suffered a net loss of $124 million for its 2011 Q4. It earned $3 million during the same quarter in 2010.

Crude oil margins were cited as a primary reason for the loss. "Clearly our fourth quarter was disappointing," Goff acknowledged during the earnings call. "But 2011 was an excellent year for Tesoro, and I remain confident about our future."

In other earnings news, Royal Dutch Shell plc's downstream division, home to its convenience stores, continued a winning trend by reporting a net profit of $34 million for its 2011 fiscal fourth quarter. The company lost $338 million during the same quarter in 2010. However, much of the downstream profits were due to a tax credit and a net divestment gain.

More specifically, Simon Henry, Shell's CFO, said the company's downstream segment is executing a plan to "get out of markets where we have limited potential."

Companywide, Shell earned a net profit of $6.5 billion for its 2011 Q4, higher than the $5.7 billion it posted in Q4 2010. For the year, Shell took in $28.6 billion, compared to $18.6 billion in 2010.

"Our fourth quarter results were impacted by a sharp downturn in industry refining margins and North American natural gas prices. The global economy and energy markets are likely to see continued high volatility. Despite the near-term uncertainties, Shell's focus remains on through-cycle investment for sustainable growth," said Peter Voser, Shell's CEO.

Voser added that he was pleased with Shell's overall 2011 results. "We have made good progress with portfolio development during 2011, with new opportunities in global gas, liquids-rich shales and exploration, alongside some $7.5 billion of divestments as part of Shell's drive for ongoing capital efficiency and portfolio improvement."

Looking forward, Voser said he expects global markets to continue to withstand instability. "Shell has a sustainable growth strategy to get through these difficult times," he said.

Voser continued, predicting that the world will change dramatically in the next 18 years. "Demand for oil and gas could grow by 40 percent by 2030," he said.

Shell also reported that it has budgeted $30 billion companywide for 2012 capital expenditures.