By Dennis Oda, Star-Bulletin
Protesters take their demand for lower gas prices
to the streets during a demonstation yesterday on King Street.
Isles getting new refiner,
but same ’ol gas prices,
analysts say
Tesoro Petroleum doesn't have
By Rob Perez
the right stuff to be the competitive player
that Hawaii needs, they say
Star-BulletinIf consumers are hoping the planned sell of BHP Hawaii's refinery and gas stations will bring lower pump prices, don't count on it, analysts and industry observers say.
Yesterday's announcement that Texas-based Tesoro Petroleum Corp. has agreed to purchase Broken Hill Proprietary Ltd.'s Oahu refinery and 32 stations immediately was cast in the context of the ongoing controversy over Hawaii's high gas prices.
But several observers noted that Tesoro, the major player in Alaska's gas market, isn't known for aggressive price competition -- the prescription critics say is needed for Hawaii's market.
While Hawaii has the highest pump prices in the nation, Alaska typically has the second- or third-highest.
And the average wholesale price -- excluding taxes -- charged in Alaska occasionally even tops Hawaii's, analysts say. On March 6, for instance, the average per-gallon wholesale price for regular unleaded was 94.98 cents in Alaska, compared with 94.68 in Honolulu, according to Tim Hamilton, a Washington state-based petroleum consultant.
"If you think you're getting a low-price marketer, you're sucking out of the wrong end of the straw," Hamilton said.
Hugh Ogburn, a retired executive with Pacific Resources Inc., which built the refinery that BHP's Australian parent acquired in 1989 for $380 million, said he doesn't expect any fundamental changes in pricing or operational strategies.
In Alaska, he said, Tesoro and Mapco Inc. are the dominant refinery players, and neither are aggressive on the pricing front. He sees lots of similarities to the relationship between BHP and Chevron Corp., owner of Hawaii's other refinery and the market leader here.
"As long as no one rocks the boat price-wise (in Alaska), everybody's happy," said Ogburn, who dealt with Tesoro as an oil trader in the 1970s. "They see the same opportunity here."
Even Tesoro spoke of similarities between the two markets.
Greg White, the company's chief financial officer, said BHP Hawaii was a perfect fit for a company that's used to working in a noncontiguous U.S. market and, among other similarities, has few refinery competitors in that market.
"Take away the snow and put in some palm trees and they're the same," White said.
Both refineries also use Alaskan North Slope crude oil and market fuel to the Pacific Rim. Refiners can get crude cheaper if they buy one type in greater volumes, and shipping fuel and oil in larger vessels also lowers expenses.
BHP "is very compatible with their Alaskan refining and marketing operations," said Malcolm Turner, president of the Turner, Mason & Co. refining consulting company.
BHP put its refinery and gas stations on the market partly because the company said its profit levels here were unacceptable. One BHP executive said this week the local operations barely broke even the past three months.
BHP said yesterday it was taking a $98 million loss in the sale of its Hawaii operations.
Ogburn said BHP was struggling mainly because it has sunk so much -- roughly $650 million by his estimate -- into the refinery, with such a high cost basis acting as a drag on profitability.
But because Tesoro is getting the refinery and stations for $275 million in cash plus a $50 million promissory note, it will have a much lower basis that will help the bottom line, Ogburn said.
The cost of borrowing money to pay for the deal will be more than made up by sales in what for other companies is a highly profitable market, he said.
The purchase will nearly double Tesoro's revenue to about $2 billion a year and give it Hawaii's largest refinery, which can process 95,000 barrels of oil a day.
But even with the additional revenue, Tesoro will remain a tiny company compared with Chevron, and it lacks the deep pockets to challenge Chevron's roughly 30 percent market share in Hawaii, especially via a price war, industry observers say.
The Tesoro deal is subject to regulatory approvals.
Bloomberg News contributed to this report.
