Tesoro plans to sell its Hawaii refinery

San Antonio-based refiner Tesoro Corp. said Tuesday that it plans to put its Hawaii operations on the auction block, including its Kapolei refinery, 32 retail stations and all assets related to those operations.

CEO Greg Goff said in a statement that the company determined that “our business in Hawaii does not align with our strategic focus on the midcontinent and West Coast,” and the business “is no longer in line with our vision for Tesoro’s future.”

The refinery, which can process 94,000 barrels of oil a day, makes gasoline, diesel, jet fuel, ship fuel, asphalt and fuel oil for electrical generation, according to the company’s website. Tesoro is a supplier of transportation fuels in Hawaii, and a pipeline from the refinery feeds terminals at Honolulu International Airport, Honolulu Harbor and military installations, according to the company.

But Tesoro’s Hawaii refinery has processed less than 70,000 barrels of day of crude in the last few years, “so it’s a plant that’s operating well under its nameplate capacity,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

“About 75 percent of the crude oil processed in the Hawaii plant is light sweet crude oil, some of which comes from Indonesia, Australia and Malaysia, and is some of the highest-priced crude in the world,” he said.

Stacey Hudson, research associate at Raymond James & Associates in Houston, agreed, saying Tesoro “has had a lot of issues there as far as their crude contracts for the plant. And when you have bad crude contracts, it doesn’t do much good for the bottom line.”

“It’s a long haul from anywhere to Hawaii,” she added, “and when (crude) prices change, they end up being exposed. When the price of crude appreciated a lot, they ended up with terrible margins.”

In spring 2010, Tesoro said it was evaluating all seven refineries in the midst of a weak market for its products and high prices for crude oil.

At that time, a Tesoro executive told the Honolulu Advertiser that the company’s Kapolei plant — the largest refinery in Hawaii — lost money in 2009 and had continued to lose money in early 2010. He also said Tesoro was considering converting the Hawaii plant into a terminal, where fuel would be dispensed.

In its Tuesday statement, Tesoro touted the attributes of the Hawaii plant. “The Kapolei refinery enjoys a favorable geographic position, excellent logistical infrastructure and an advantaged configuration that make it an attractive business for interested buyers,” Goff said in the statement.

Tesoro said it anticipates completing the sale no sooner than the second half of 2012, subject to regulatory and other approvals.

The company said it would meet all commitments during the marketing and sales process.