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Gold/Mining/Energy : TSO: Tesoro Petroleum Corp.
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From: Dennis Roth6/18/2008 9:19:33 AM
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Tesoro Corp. (TSO) - Credit Suisse
Adjusting earnings for updated guidance, Lowering Target Price to $21 (from $25) - M. Flannery - June 17th, 2008

· TSO released an 8-K that provided updated guidance for 2Q08 and 2008. The company reported that operating expenses in 2Q08 would be higher than previous guidance by $0.30 to $0.50 per barrel due to higher than expected energy costs. Additionally, TSO reported that it decided to close its crude derivative positions associated with matching long-haul crude to day-of-processing margin. By closing these positions, the company expects 2Q08 earnings to be negatively impacted by $125mn.

· TSO's realized margins will be depressed by the company's exposure to heavy ends, which have lagged the significant run in crude prices this quarter. Furthermore, the company expects operating expenses to remain at elevated levels in its California segment due to high natural gas prices. Guidance for throughputs and corporate expenses remains unchanged.

· Based on these guidance revisions, we are adjusting our 2Q 08 EPS estimate downwards from $1.41 to $0.25 while our FY08 EPS estimate goes from $1.51 to $0.27. W e are also lowering our target price from $25 to $21.

· TSO also updated us on its liquidity position. Borrowings under its credit facility were $305mn as of May 31, 2008, down from $545mn on March 31, 2008. The company expects to reduce inventory by 3mn barrels for 2Q08, a move expected to reduce borrowings under the facility to the year-end 2007 level of $120mn. The company also expects to have no borrowings under its credit facility by the end of July.

· Additionally, TSO expects to remain on schedule to generate $750mn to $1bn in operating cash flow for 2008.
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