UPDATE 2-U.S. Tesoro to turn Hawaii refinery into terminal

Tue Jan 8, 2013 10:03pm EST

Related Topics

* Refinery to cease operations in April, begin conversion

* Joins raft of refineries converted into terminals

Jan 8 (Reuters) - Tesoro Corp's 93,500 barrel per day (bpd) Kapolei, Hawaii, refinery will become the seventh Western Hemisphere plant since 2009 to be shuttered and converted to an import, storage and distribution terminal, the company said on Tuesday.

Tesoro had been marketing the refinery with the goal of cutting a deal to sell it by the end of last year.

"The number of potential buyers was not many to start with," said Al Troner, president of Houston-based Asia Pacific Energy Consulting.

"It comes down to the idea that you have a distant, small market without much potential to expand. Eventually the futility of the facility does not bear putting any more investment into it."

Tesoro said it expects to take a one-time charge between $1 and $1.10 per share in the fourth quarter. Analysts' average per-share forecast for the fourth quarter was $1.51, according to Thomson Reuters I/B/E/S.

The company also said in an announcement that it expects to realize between $300 million and $350 million in cash by the end of 2013 on a reduction in working capital needs due to the conversion.

The Hawaii refinery imports all the crude oil the firm needs to make motor fuels for the local market.

Six other refineries in the Western Hemisphere have converted to terminals since 2009. Like the Tesoro refinery, they were unable to lower their crude oil costs as demand failed in the recession that began in 2008.

Tesoro said the Kapolei plant will cease refining operations in April.

STILL LOOKING TO LEAVE

Converting the Hawaii refinery to a terminal also moves it into midstream logistics, a growing source of profit for refiners.

"That's no surprise, they're dropping it into the midstream," said David Hackett, president of Stillwater Associates, a West Coast energy consultancy. "That's where the dough is."

Midstream, which includes terminals and pipelines, operates on a fee-based model that's not exposed to rapid swings in feedstock prices and demand.

But Tesoro signalled it wants to eventually leave Hawaii.

"Tesoro Hawaii will maintain the existing distribution system to support marketing operations and fulfill its supply commitments while continuing to offer the terminal, distribution and retail assets for sale," the company said.

Tesoro owns 29 retail stations in Hawaii, which it will continue to operate.

Chevron Corp. operates a 54,000 barrel per day refinery in Ewa Beach, Hawaii.

A Chevron representative did not reply to a request for comment about Tesoro's plans for its Hawaii operations.

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A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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