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    Tesoro, Shell Profits Fall on Low Margins

    The oil majors saw higher costs and in some cases, losses.

    SAN ANTONIO -- Financial reports in the fourth quarter of fiscal 2007 show some bleak numbers for the major oil companies. In financial statements yesterday, both Tesoro Corp. and Shell reported that profit dropped due to higher costs and lower margins during the quarter.

    "In the fourth quarter of 2006, we experienced record crack spreads on the West Coast," Bruce Smith, chairman, president and CEO of Tesoro, said in a statement. "In contrast, during the 2007 fourth quarter, West Coast product inventories rose due to higher refinery utilization rates at a time of weakened demand in part due to both economic slowdown and inclement weather in California during the end of December."

    Tesoro Corp. suffered a net loss of $40 million in the fourth quarter of 2007, compared to net income of $158 million in the previous comparable quarter, the company stated. The drop was due to weak refining margins higher operating expenses and poor marketing margins on the company's West Coast operations. Its Hawaii refinery saw an $86 million pre-tax operating loss during the fourth quarter, compared to a $19 million pre-tax operating profit for the year-ago period, according to the company.

    "In 2007, Tesoro had many notable successes and fulfilled several goals," said Smith, noting the Shell and USA Gasoline acquisitions nearly doubled its retail network.

    However, the company expects improvements in the spring.
    "Three factors should have a positive impact on the outlook for spring margins -- lower planned production runs combined with the impact of planned turnarounds, the seasonal reduction of gasoline inventories due to the transition into summer-grade gasoline and increased seasonal demand," added Smith.

    In other financial news, Royal Dutch Shell Plc's fourth-quarter earnings missed analysts' estimates for the first time in two years, due to a decline in production and lower refining margins, Bloomberg News reported.

    Profit excluding inventory changes and one-time items was $5.72 billion for the quarter, less than the $6.03 billion median forecast of eight analysts surveyed by Bloomberg News. Net income climbed 60 percent to $8.47 billion, from $5.28 billion in the year-earlier quarter, Bloomberg News reported citing a company statement.

    In addition, profit from refining fell 40 percent in the period and margins will stay weak in 2008, said CEO Jeroen Van der Veer.

    "I expect an environment of weaker margins and we have to deal with a relatively weak dollar" this year, Van der Veer said in a press conference cited by Bloomberg News. "If you think about oil prices, you will have to expect ongoing volatility."

    "I'm modestly disappointed," Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh, told Bloomberg News. "You've got a lot of unknowns on the horizon and refining margins are going to be quite low this year."

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