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Tesoro Alaska looking for ways to turn around 1999 loses in state Report due to board of directors at end of April Kristen Nelson PNA News Editor
Tesoro Alaska Petroleum Co. is looking for ways to turn around its 1999 loses in the state and has a deadline to report to the company’s board of directors at the end of April.
Steve Ricks, president of Tesoro Alaska Petroleum, told PNA March 7 that no decisions, such as selling its Kenai refinery, have been made yet on how do to that.
“We had a very disappointing 1999,” he said. “We reported a loss of $3 million for the Alaska operation,” including retail, refining and marketing.
Alaska, he said, “is a relatively expensive place to do business.
“That’s OK, but when you’re given a state that has a very limited population and a very vast area to serve, it’s hard to recover your costs without simply raising prices,” he said.
The company faces the dual challenge of “trying to be good stewards of the cost of our goods and services” while dealing with rising costs for crude oil, environmental and spill response and the cost of shipping crude, Ricks said.
Tesoro uses all the available Cook Inlet crude production, “but we also have to ship that in,” he said, since it is piped across the inlet to Drift River on the west side and has to be shipped back to Tesoro’s Kenai Peninsula Nikiski refinery.
Tesoro also ships Alaska North Slope crude in from Valdez.
Spill response in two areas Because the company uses tankers in both Prince William Sound and Cook Inlet, Ricks said, it pays for spill response in both the sound and the inlet. And, while it’s just one of the shippers in Prince William Sound, it’s the only shipper bringing crude into Cook Inlet so it funds more than 60 percent of Cook Inlet’s spill response.
The Jones Act adds to Tesoro’s costs, Ricks said, because it requires that the company use only American flag vessels. And OPA ‘90, which is the basis for the spill response requirements, is aimed at crude oil other shippers — those carrying fuel, for instance, pay only a minimal part of the cost, he said. In addition to Tesoro, Ricks said, Unocal and Phillips pay for Cook Inlet spill response.
Tesoro, which averages two tanker trips into its Nikiski dock a month, pays $4 million as its share of Cook Inlet spill response, he said.
Tesoro’s competitors ship oil out of the state all the time, “but it’s as fuel,” so their portion of spill response costs is minimal.
Ricks said he was not suggesting that spill response shouldn’t be done, “but,” he said, “it’s a cost of doing business in Alaska; I don’t begrudge it, but I have to recover the cost…”
In addition to the rising price of crude oil, Ricks said, the company has spent $1 million gathering documents the state wants in its investigation of gasoline pricing in the state.
Ricks said the company has produced the documents and they are now in storage. “The state hasn’t picked them up yet or started looking through them.”
Looking at costs, strategic options Tesoro is looking at all aspects of the business, Ricks said: cost of utilities, crude, transportation, markets the company serves. “Maybe you need to find another market to serve, such as Russia,” instead of delivering crude to the West Coast, he said.
But in any business, he said, you have to make a reasonable profit or you can’t protect the safety and wellbeing of your employees.
And you can’t take shortcuts in the refinery business, or in the environment either, he said. “If you simply cannot make enough money to cover those things then you have to reevaluate your business.”
Ricks said Tesoro is looking at costs and strategic options, it is “not looking at a goal of going out of business… but if none of these work out, your options get very slim.”
“We’ve committed to report to our board of directors on what we think our actions need to be to address this situation by the end of April,” he said.
Current high crude prices, while good for the state of Alaska, raise the price the refinery pays for the crude oil it uses to make gasoline. Every $10 more a barrel comes out to 24 cents more a gallon, he said, “so the run-up in crude prices has to be passed on in the way of gasoline and other fuel prices.”
And even at $1.50 a gallon, Ricks said, “name one other product that you buy that’s as cheap as a gallon of gasoline. There is no fluid that you can buy in a store that’s as inexpensive as gasoline… People pay more for a gallon of bottled water by 10 times than a gallon of gasoline. So it’s all perception…”
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