Vultures Up to Their Beaks in



Sightings from The Catbird Seat

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Tesoro was founded in 1968 as a company primarily engaged in petroleum exploration and production.

In 1969, Tesoro began operating Alaska’s first refinery, near Kenai.

As of 2005, Tesoro is a FORTUNE 200 company and one of the largest independent petroleum refiners and marketers in the United States.

In the late-1990s, Tesoro methodically grew through a series of acquisitions and strategic initiatives that created Tesoro Corporation – a dynamic, competitive company focused on a single core business: petroleum refining and marketing.

Strategic acquisitions expanded refining capacity from 72,000 barrels per day to nearly 560,000 barrels per day, almost an 800 percent increase in volume. This transformation included the following milestones:

1998: Acquired refineries in Kapolei, Hawaii and Anacortes, Washington.

1999: Sold exploration and production operations.

2001: Purchased refineries in Mandan, North Dakota and Salt Lake City, Utah.

2002: Acquired Golden Eagle refinery in Martinez, California.

2003: Sold marine services. Also made a series of refinery acquisitions that boosted the company’s capacity output and positioned it for future expansion in key growth markets throughout the Western United States.

2005: Largest capital expansion program in the company’s history; record earnings.


August 25, 2003

Gas prices here linked to Japan power problem

By Sean Hao, Honolulu Advertiser

Blame for the latest increase in Hawai’i’s gasoline prices may rest with a power supply problem that began last year in Japan, according to industry officials.

Controversy surrounding falsified inspection documents last August caused Japan to temporarily shutdown all 17 of its nuclear reactors this spring. To meet its power needs, Japan stepped up purchases of specialty crude oil from Indonesia, which drove up prices for Indonesian crude oil while prices for other crudes fell.

Since Hawai’i refiners import an estimated 45 percent to 55 percent of their crude oil from Indonesia, the state didn’t benefit from an overall drop in oil prices that helped drive down prices at the pump elsewhere after the war in Iraq, said Widhyawan “Wawan” Prawiraatmadja, an energy researcher at the East-West Center.

That explains why the state’s gasoline prices have remained at or near peak levels much of the year despite a drop in Mainland gas prices, he said. As of Friday, the average price of gasoline statewide was $2.094 a gallon, compared with $1.738 a year ago.

Albert Chee, a spokesman for ChevronTexaco Corp., said the refiner typically imports between 70 percent and 80 percent of its crude oil from Indonesia, where the company owns several oil fields. He said Indonesian oil prices have been declining, but on average are still up by more than 15 percent over last year….

“The demand from Japan has tapered off,” said Esa Ramasamy, an editorial manager in the Singapore office of the price-reporting agency Platts. But crude oil “is still being held up because of the hot weather in Europe,” which also buys Indonesian oil.

Still, the price for Indonesian benchmark Minas crude, which hit a 52-week high of $34.66 a barrel on Dec. 30, 2003, was down to $28.77 a barrel Friday, according to Bloomberg News. That’s only about a dollar more than crude from Dubai in the United Arab Emirates, which is a barometer for Middle East oil prices. During the height of Japanese buying, the gap between Minas and Dubai crude was as much as $7 a barrel.

However, the disparity between Indonesian oil and other crudes doesn’t fully explain Hawai’i’s prices. The main reason prices in the state remained high all summer is a lack of wholesale-level competition, Wawan said. Competition in the state’s relatively small gasoline market at the wholesale-level is limited to the two refiners ChevronTexaco and Tesoro Petroleum Corp.

“The cost of the crude matters a lot, but in a competitive market those who are accessing this crude will have to eat up those prices,” Wawan said. “In Hawai’i you can pass (higher oil prices) on to your consumers because there’s no marketplace that you have to compete with.”…

David Leonard, vice president for Tesoro Hawaii, said the company buys a significant amount of crude from Indonesia, in addition to oil from other markets such as Alaska, Australia and the Middle East. He said prices at the pump are a result of a combination of factors not limited to crude oil costs….


June 11, 2003



WASHINGTON — Senator Daniel K. Inouye, a member of the Senate Appropriations Homeland Security Subcommittee, announced today that the State of Hawaii and four isle companies will be receiving more than $7 million in federal funds to help combat potential terrorist threats.

“The grants, specifically for port security, will be key to ensuring the safety of Hawaii’s ports,” Senator Inouye said. “As we all know, Hawaii is very dependent on maritime traffic. Our ports are vital lifelines for our islands.”

The grant recipients are:

State of Hawaii, Department of Land and Natural Resources in Kailua-Kona – $1,450,000

State of Hawaii, Department of Transportation – $ 645,000

Tesoro Hawaii Corporation$2,850,000

Matson Navigation Company – $ 805,000

The Gas Company – $ 630,561

Chevron Products Company – Hawaii Refinery $ 625,000

The six grants are a combined total of $7,005,561.

The grants are part of the $150 million funded in the 2003 Omnibus Appropriations Act, and $20 million from the 2003 Supplemental Appropriations Act.

For more information, contact the grant recipients.

– For more, GO TO > > > The Department of Homeland Security


March 20, 2003

Tesoro to receive crude
oil from Russia

Pacific Business News (Honolulu)

Tesoro Petroleum Corp. will receive in May the first U.S. West Coast crude oil from Russia, according to sources who didn’t want to be named.

The company has refineries in Hawaii, Alaska, Washington state and California and is the first company on record to bring Russian crude to the U.S.

Approximately 700,000 barrels will be delivered in equal amounts to its refineries in Hawaii, Alaska and the San Francisco Bay Area.

The name of the company that sold the Urals oil cargo was not identified.


September 7, 2001

Tesoro buys more refineries

Pacific Business News (Honolulu)

Tesoro Petroleum Corp., owner of the larger of two petroleum refineries on Oahu, has completed the purchase of two more refineries for a total of five.

BP, the former Sinclair oil company until purchased decades ago by British Petroleum, sold Tesoro its refineries in Salt Lake City and Mandan, N.D. The purchase was brokered by Lehman Brothers and was financed with debt.

Tesoro now has daily refining capacity of almost 400,000 barrels, making it the second-largest independent refiner and marketer in the West. Its marketing system includes more than 600 branded retail stations, about 160 company-owned.


January 18, 2001

State: Big oil firms tried to
cripple Aloha Petroleum

Attorneys for several firms dispute the allegations that
they conspired against Aloha’s lower prices

By Rob Perez, Star-Bulletin

The major oil companies in Hawaii tried to cripple Aloha Petroleum in the 1990s because its lower gas prices undermined a scheme that produced high profits for the industry and high costs for consumers, the state alleges in court documents.

Aloha’s pricing strategy prompted the other companies to boycott Aloha until it started importing gasoline, the state says in documents filed as part of a $2 billion antitrust lawsuit against the major companies. Aloha began importing in 1997.

Attorneys for several of the oil companies strongly denied the state’s allegations.

“That’s just nonsense,” said Alan Grimaldi, a Washington, D.C., attorney representing Texaco Inc. “There’s absolutely no evidence of that.”…

Attorney John Myrdal, who represents Unocal Corp., likewise dismissed the state’s allegations. “These are totally false,” he said….

Had 20-year contract

Aloha also had a 20-year supply contract with BHP Petroleum, which used to own one of Oahu’s two refineries, until 1997, Grimaldi said.

Few details of the state’s allegations have been made public, and Spencer Hosie, the San Francisco attorney heading the state’s case, did not respond to requests for comment. Aloha Petroleum also did not return phone calls seeking comment.

The allegations are briefly mentioned in an October 2000 federal court filing by Texaco, a defendant in the antitrust case.

One state document referred to in the Texaco filing said Unocal, also known as Union Oil, refused in 1993 to provide Aloha with fuel that could be obtained directly from Unocal’s suppliers. Unocal at the time got its supply from BHP and Chevron, which owned the other Oahu refinery, in exchange for providing gas to the two companies elsewhere.

Unocal refused for the next two years to provide fuel or “terminaling” to Aloha, according to the state.

“This refusal confirms that Union had joined with its ‘exchange partners’ to control and cripple Aloha as a price competitor in the Hawaii market,” the document said.

Chevron did not respond

A Chevron spokesman did not respond to a request for comment. A spokesman for Australia-based BHP, which sold its Hawaii refinery and gas stations to Tesoro Petroleum Corp. in 1998 and no longer is in the market, could not be reached for comment.

In the court document, the state said Unocal considered Aloha to be a price cutter whose marketplace conduct reduced profit margins for Unocal and its exchange partners.

The state then quoted from a 1995 Unocal memo to support its contention.

“Aloha is a fast growing independent competitor generally not looked upon favorably by our competitors or Unocal dealers and marketers because of their price cutting actions at retail and wholesale,” the March 1995 Unocal document said.

Little additional information about the alleged effort to gang up on Aloha is found in the public portion of the lawsuit file. Most details are in documents still under seal and unavailable for public inspection.

But in a 1994 report on Hawaii’s high gas prices, the state attorney general’s office said Aloha claimed it could not obtain competitive exchange agreements with Chevron and BHP.

Yet the other companies that did not make gasoline here had exchange agreements with the two refinery operators.

The exchange agreements, the state alleges in the lawsuit, were only available to companies that would not compete on price, preserving high profit margins. Those agreements were used to allocate market share among the companies and to fix prices, according to the state.

Tim Hamilton, a mainland petroleum analyst who has studied Hawaii’s market, said he wasn’t surprised by the state’s allegations.

‘Common business practice’

In mainland markets where independent gas marketers aggressively cut prices to try to build volume, the major oil companies pressured the independents to retreat or face being driven out of business, Hamilton said.

“This has been found and shown and documented before,” he said. “It’s a common business practice.”

Hamilton said Aloha likely was pressured into keeping its per-gallon prices within a few cents of the stations run by the oil companies. That way, Hamilton said, Aloha could not continue taking market share from the other companies.

Dealers at competing gas stations say Aloha, an $80 million company with roughly 15 percent of the Oahu market, does not price as aggressively today as it did in the early 1990s. Aloha stations, which are operated by the company instead of dealers, generally are in the low end of the price range on Oahu.

When the state filed its antitrust lawsuit in October 1998, Aloha was the only major gas company in Hawaii that was not named as a defendant.

Hosie at the time said Aloha was excluded because it initially wasn’t part of the group that conspired to keep Hawaii prices artificially high.

When Aloha bought gas locally, it was charged a higher price than the other major suppliers that got fuel from Hawaii’s refiners, Hosie said.

Once Aloha started importing less-expensive gas, however, it did not pass on the savings to consumers and benefited from the alleged conspiracy, Hosie said in the October 1998 interview.

The oil companies have denied the conspiracy charge. The lawsuit is scheduled to go to trial in September.


November 23, 1999

BHP, Tesoro settle; companies to
help state gather evidence

The settlement beefs up the state’s
$2 billion suit, experts say

By Rob Perez, Star-Bulletin

The state has substantially bolstered its $2 billion antitrust lawsuit against Hawaii oil companies by striking a proposed settlement with two defendants who have agreed to assist in the evidence-gathering process, antitrust and industry experts say.

In a surprising development late yesterday afternoon, the state, BHP Hawaii Inc. and Tesoro Petroleum Corp. announced a tentative settlement that dismisses the two companies and Tesoro’s Hawaii subsidiary from the lawsuit in exchange for $15 million and a pledge of continued cooperation in the case.

The agreement, under which BHP and Tesoro deny wrongdoing or liability, still must be approved by a federal judge.

This creates massive problems for the rest of the (defendants).’

Experts say getting the cooperation of two key industry players — a past and current owner of one of only two Hawaii refineries — will be instrumental as the price-fixing case moves toward trial in February 2001.

“This is very significant,” said Robert F. Miller, who headed the state’s antitrust division in the Attorney General’s office from 1979 to 1981 and now is in private practice. He has characterized the state’s case in the past as very weak.

Tim Hamilton, a mainland petroleum analyst who accused oil companies of gouging Hawaii consumers even before the state filed the lawsuit, said the proposed settlement is a major plus for the state.

“This creates massive problems for the rest of the (defendants),” Hamilton said. “They are in big trouble.”

Suit accused 7 companies

Following a series of Star-Bulletin articles in 1998 on Hawaii’s high gas prices, the state in October of that year filed a federal lawsuit accusing seven oil companies and several related subsidiaries of conspiring to fix Hawaii’s wholesale gas prices.

The conspiracy, the state alleged, resulted in hundreds of millions of dollars in excess profits for the companies throughout the 1990s. The government also alleged the defendants concealed the conspiracy for years.

The companies have steadfastly denied the allegations.

Chevron Corp., the state’s market leader and one of the remaining defendants, yesterday said it will continue fighting the charges….

In the retail market, BHP — and subsequently Tesoro, which acquired BHP Hawaii in May 1998 –had only an 11.9 percent share, according to the state. Chevron has the largest chunk at roughly 30 percent and owns Hawaii’s other, larger refinery.

“We can focus on the larger players now, and that’s what we’re going to do,” said Spencer Hosie, the San Francisco attorney whose law firm is handling the antitrust case on behalf of the state….

Faye Kurren, president of Tesoro Hawaii Corp., had a more benign take on yesterday’s announcement.

The agreement simply means Tesoro and BHP will continue cooperating with the state — providing information and documents — just as the companies have in years past when the attorney general’s office investigated the local industry, Kurren said.

“It’s not anything that’s extraordinary by any means,” Kurren said.

Some industry watchers were skeptical, however, saying such a reaction would be expected because Tesoro and BHP’s parent still are part of the industry and want to downplay whatever help they may provide that could be used against the other defendants.

First settlers get discount

Under the proposed settlement, BHP has agreed to pay $12 million and Tesoro $3 million, reflecting the fact that Tesoro entered the Hawaii market via the BHP acquisition only months before the lawsuit was filed.

The state said the settlement reflects a discount that was offered to the two companies because they were the first to settle. Presumably, any other settlements would come at a steeper price.

Kurren said the agreement does not require Tesoro to change any of its business practices. The two companies made a purely business decision to settle even though the state’s allegations were untrue, she said.

Over the past year, Tesoro alone spent well over $1 million in outside legal fees and costs, plus substantial staff time has been devoted to the case, Kurren said.

Faced with the prospect that the lawsuit could drag on for several more years, the companies — at the state’s initiative — began settlement negotiations, she said. The negotiations took about one month to complete.

“It’s just a sound business decision.” Kurren said. “We settled basically for what amounts to less than three years of legal fees.”

Miller, the antitrust lawyer, and some industry analysts scoffed at such reasoning, noting that one of the industry’s defenses has been that the lawsuit lacked merit and was politically motivated, allegedly designed to help in Gov. Ben Cayetano’s 1998 re-election bid. The complaint was filed a month before Cayetano won re-election.

If the lawsuit was just political posturing, companies wouldn’t consider settling, they said.

“Somebody doesn’t give you $15 million … to settle a political shibai case,” said Miller, who last year represented Texaco dealers in an unrelated lawsuit against Texaco Inc., one of the remaining defendants in the state case.

The other main defendants include Shell Oil Co., Tosco Corp. and Unocal Corp.

Timing called a surprise

Another antitrust lawyer who asked not to be named said the amount of the proposed payment suggests that the case has enough merit to prompt the two companies to avoid potentially greater liability down the road.

The settlement would free the two companies from any claims stemming from the state’s lawsuit.

Several experts said they were surprised a settlement came so early in the process. The trial isn’t scheduled to begin until February 2001, and discovery — the evidence-gathering process — is nowhere near finished.

Among those still to be questioned is Cayetano. He is expected to answer in writing more than 200 questions from Chevron, including what role the Star-Bulletin’s coverage played in a decision to file the lawsuit. Lawyers for the state previously have said that coverage was a key factor….

Chevron spokesman Albert Chee Jr. declined to comment on the two defendants’ decisions to settle and assist in the state’s discovery. Chee said Chevron’s intent remains unchanged. “Simply put, we plan to prove the state’s charges of price-fixing are absolutely unfounded.”…

The state yesterday filed a motion asking the court to approve the proposed settlement agreement. A hearing is expected to be held early next year.

~ ~ ~

First funds will filter to consumers slowly

A portion of the initial settlement will go toward paying
litigation expenses, both present and future

By Rob Perez, Star-Bulletin

If a federal judge approves the proposed settlement involving two oil companies, Hawaii consumers could get some of the $15 million.

But don’t plan your holiday shopping based on an expected share.

Even if the proposal is approved, any money that filters to consumers likely won’t be seen for years.

The state wants to use about $1.23 million of the $15 million settlement amount to reimburse litigation costs the state and private lawyers helping the government have incurred so far in the case.

The San Francisco law firm of Hosie Frost Large & McArthur, which the state hired on a contingency basis to handle the lawsuit, also would get about 20 percent of any settlement proceeds after costs are reimbursed. That amounts to an estimated $2.7 million.

In addition, the state wants to set aside $3 million for future litigation costs to pursue the lawsuit against the remaining defendants.

(Tesoro Petroleum Corp. and BHP Hawaii Inc. are the two main defendants who agreed to the proposed settlement and would be dismissed from the lawsuit. Five other main defendants would remain).

What money is left would be deposited in an interest-bearing account and probably held until the lawsuit is resolved, a process that could take several years at a minimum.

If consumers don’t like this proposed settlement and figure they can do better on their own, they can ask the court to be excluded from this deal.

The state filed the $2 billion antitrust lawsuit on behalf of Hawaii residents.

A federal judge ultimately will decide whether the proposed settlement is fair and, if so, how the money will be distributed. The soonest a hearing will be held is early next year.

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Last Update August 9, 2006, by The Catbird