Oil refiner Tesoro Corp. (NYSE: TSO) announced late yesterday that it would close its 93,500 barrel per day refinery in Kapolei, Hawaii, this coming April. The company has been seeking a buyer for the refinery, but none has appeared, so Tesoro now plans to convert the plant to an import, storage, and distribution terminal.
Tesoro will take a one-time charge of $1.00 to $1.10 in the fourth quarter of 2012 to account asset impairment and retirement obligations. That amount will be partially offset by a savings of $300 to $500 million by the end of 2013, primarily due to a reduced need for working capital to keep the refinery operating.
Continuing to operate the refinery makes little sense due to the small and low-growth market for the plant’s products. Storing and distributing imported fuel exposes Tesoro to the midstream logistics portion of the oil business, which avoids the fluctuating costs of crude by relying more on regulated and negotiated rates for storing and moving products.
After the conversion Tesoro will continue to seek a buyer for the midstream operations that it plans to implement. Chevron Corp. (NYSE: CVX) operates the only other refinery in Hawaii, a 54,000 barrel a day plant at Ewa Beach.