For the first quarter, Tesoro Index was above $2.50 per barrel (bbl) higher than in 2008, while the company’s realized gross margin of $12.14/bbl was $5.60/bbl higher as a result of better margin realization. The company’s improved capture of the available benchmark versus the 2008 first quarter resulted in a $150 million operating income increase with no significant derivative impact in the current quarter.
For the first quarter of 2009, total system heavy crude runs up by 4% and light crude runs down by 6% against a year ago. The California and Mid-Pacific regions ran a joint 17,000 barrels per day (bpd) more heavy crude and 27,000 bpd less light crude in comparison to the first quarter 2008. In the Mid-Continent area, inclement weather and low absolute crude prices hampered crude production; however, the company’s realized differentials to WTI on those crudes were still better than the 2008 first quarter.
Quarterly results were impacted by stronger gasoline spreads and weaker distillate spreads. In the West Coast, spot gasoline prices averaged a $5.75/bbl premium over spot diesel prices during the quarter versus a $10.61/bbl discount during the first quarter of 2008. From January to March 2009, as diesel margins decreased, the company shifted 5% of Tesoro production out of distillates into gasoline and other products. The company also benefited from rising prices for bottom-of-the-barrel products. Fuel oil prices averaged 87% of Alaska North Slope crude (ANS) during the first quarter of 2009, up by 8% than the first quarter 2008. Finally, in the retail segment we recorded an operating loss of $15 million, against a $28 million loss in the first quarter of 2008. Fuel margins were in line year-on-year and the positive variance is primarily attributable to an $11 million impairment charge in the first quarter 2008 related to a potential sale of 20 retail stations.
Total system throughput for the first quarter was 535,000 bpd, down 10% from the 2008 first quarter. In the Pacific Northwest area, total throughput was down 29% against a year ago. This was because of planned maintenance at Tesoro’s Anacortes refinery from mid-January to mid-February 2009, as well as matching production to clean product demand in our markets.
Direct manufacturing costs before depreciation and amortization were $257 million in the first quarter against $248 million in the fourth quarter 2008. Excluding the $0.12 per share after-tax reversal of an accrual in the fourth quarter of 2008, Tesoro’s operating costs decreased $18 million. The difference is primarily attributable to lower energy costs.
For the first quarter 2009, capital expenditures were $107 million, together with deferred turnaround spending. The company ended the quarter unborrowed on its revolving credit facility.
We increased cash during the quarter, eliminated a small year-end revolver borrowing, and had over one billion dollars of availability on our revolving credit facility, said Bruce Smith, chairman, president and chief executive officer. With an unusually high level of refinery maintenance activity on the West Coast, we benefited from strong crack spreads during the first quarter. Even though the start to 2009 has been better than expected, we will continue to pursue our program to reduce our cash breakeven. A large piece of that program is intended to increase our margin capture realizations, and, in the first quarter, they were above their average historical levels in each region. These results reinforce our expectations to continue delivering on our goals this year, said Smith.
