Interesting move given current problems. Anyone have any inside information on this decision, and what might be motivating it? Alaska: Tesoro refinery may close Search for profitability threatens Kenai facility By WESLEY LOY Daily News reporter

Tesoro Petroleum Corp. will consider closing its Kenai refinery as a way to bring the company's Alaska operations back to profitability, company executives said Wednesday.

The idea emerged during an earnings report made Wednesday by Bruce A. Smith, president and chief executive officer of the San Antonio-based company.

A weak spot in an otherwise favorable report was the state of the company's Alaska refining and retail operations, which lost a combined $3 million in 1999, said Steve Ricks, president of Tesoro Alaska Co.

To try to turn things around, the Alaska unit will embark on a 60-day review of possible ways to avoid more losses, and those ideas include whether to keep operating the Kenai refinery, Ricks said.

The refinery is one of two major facilities that produce most of the gasoline consumed in Alaska. The other major refinery is the Williams Petroleum refinery at North Pole.

The Tesoro refinery employs 170 people.

The company will make a decision on changes to its Alaska operations by April 30, Ricks said.

"During this time, we want to look at all aspects of our business," he said.

Aside from closing the refinery, options include either expanding or compressing Tesoro's retail operations, expanding into new markets like Russia, finding cheaper sources for crude oil, and even things like figuring out how to shrink the company's electric bill, Ricks said.

He cited another major concern of the company: the state's ongoing investigation of whether Alaska's petroleum refiners and distributors have engaged in price fixing. State Attorney General Bruce Botelho has issued subpoenas to numerous companies for large numbers of company documents. He wants to investigate what he calls "the Alaska paradox," or why gasoline prices in Alaska are high compared with the rest of the country, despite the fact that Alaska has North America's two largest oil fields in Prudhoe Bay and Kuparuk.

The state attorney general's office has battled in court with some companies, particularly Tesoro, to win access to some of those documents.

Executives with Tesoro and other companies say there is no conspiracy to keep gasoline prices high here and that the state just doesn't understand how the oil industry works.

"One of our difficulties in doing business in Alaska is things like this," Ricks said of the state's investigation. "We're approaching now $2 million to gather documents for the state to examine something, an allegation."

Tesoro's Kenai refinery uses no North Slope crude. Instead, it relies on Cook Inlet crude for about half its output, with the other half coming from the "spot market." That oil is shipped in and can originate from anywhere on the Pacific Rim, such as Indonesia or South America.

Getting that oil is actually cheaper than shipping oil over from the trans-Alaska pipeline terminus at Valdez, Ricks said.

Tesoro has 30 company-owned gas stations in Alaska. Another 150-plus independent stations sell Tesoro gasoline.

Tesoro also sells aviation and marine fuels, and heating oil in the Fairbanks area.

Tesoro Petroleum Corp. also has refineries in Washington state and Hawaii. The company Wednesday reported 1999 profits of $75 million, compared with a loss of $19.4 million in 1998.

The company said its performance might have been better had crude oil prices not risen to 10-year highs in the fourth quarter, causing "very tight refining margins," particularly in Alaska and Hawaii.

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-- Carl Jenkins (Somewherepress@aol.com), February 18, 2000