Tesoro Corporation Analysis

Introduction

The Tesoro Corporation is a US based petroleum company and has two divisions. Its line of business entails the refining and marketing of petroleum based products. Its activities are generally concentrated within the western US as well as mid-continental region of the US and generally, these are carried out by the said divisions. Generally, the products which form the product-base for the Tesoro are jet fuel, gasoline, gasoline blend stocks, diesel fuels and a variety of heavy petroleum fuel oils (Tsocorp.com, 2014). All these are basically products of refining petroleum crude. Also, it is important to note that the corporation manufactures petroleum coke, asphalt and liquefied petroleum gas; which are highly demanded by its extensive customer base. The company has over 900 retail stations and outlets and captures commercial, wholesale and retail customers. Last but not least, the company is estimated to have 7 refineries with an output capacity of about 650000 barrels every day. Generally, the company does business under the famous brands such as Tesoros, USA gasoline, Mobil, ARCO, Mira star and Shell; although it also incorporates third party business entities . This paper seeks to explore on the strategic external factors affecting the petroleum industry in the US and in particular, the Tesoro Corporation.

Overview and analysis of the strategic external factors affecting the company/industry

An Overview of Oil & Gas Industry in the United States

Generally speaking, the US petroleum refining industry is one lucrative industry in which the business entities which established themselves make good returns. For instance, the estimates total revenues, which were accrued within this industry were about $750.00 Billion USD and estimated profit margins of up to 6.4 percent of the revenues. However, it is important to highlight that the entry into the business has a high level scope of barriers such as heavy regulations and the aspects of high startup capital. This generally due to the fact that over 350 established business entities are already in action. There is high competition and this poses threats to the non-fully stabilized firms. However, opportunities are still available since technology has not been fully exploited to add advantage to the industry (Ibisworld.com, 2014).

However, many business analysts are arguing that the industry is recovering from a recession in which case they argue that in the recent years of 2011 through 2012, the prices of these products in the US had been lower than outside. Thus, in the near future, refined petroleum oil products are anticipated to sell better. These statistics therefore present a good opportunity for investment. Also, research indicates that in the near future, more energy consumption within the US and outside is bound to go higher as a result of increasing industrialization. All these make it valid to appreciate the oil and gas industry to be a better avenue of investment in the future and specifically within the next five years (Ibisworld.com, 2014). However, it's important to appreciate that campaigns which push for the adoption of green energy technologies are seen to reduce the revenues to about 0.5 % increase in an annual scale up to the next five years as well.

Opportunities and threats of Tesoro (External Factor Analysis)

The Tesoro Corporation has been in the energy industry for quite a good duration and has established remarkable successes in the past. However, the journey for this company has not been smooth like for any other competing business entities. At this juncture, the above overview offers insight to enable us regard the Opportunities for Tesoro as possibilities of improvement in its technology levels, expected high returns due to increasing oil and gas demand in the U.S. and the outside (thus more export opportunities) and the ever rising oil prices. Likewise, the overview of the industry suggests the following as the possible threats to the Tesoro. These include, but not limited to: intense competition and barriers such as tough environmental laws. These laws can be attributed to the doctrine of the "go green campaigns" (Datamonitor-Firm, 2000).

SWOT analysis

Strengths

Weaknesses

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Opportunities

Threats

  • Space for improvement in its technology,
  • Anticipated high returns due to increasing oil and gas demand in the U.S. and the outside,
  • More exports expected as a result of the high demand of refined petroleum products outside the US; and
  • Expected increased returns due to the ever rising oil prices in the US.
  • Intense competition from other refinery business entities
  • Barriers such as tough environmental laws and trade regulations. These are attributable to the "go green campaigns" on alternative energy.

Generally speaking, the opportunities and threats for any business form the external factors. For Tesoro Corporation, the analysis of these factors can be summarized and presented as follows:

From the above table, it is quite apparent the Tesoro Corporation still stands a great chance of soaring high in the petroleum refining industry in the US despite the dynamics within the latter. This therefore suggests that the industry is still ripe for exploitation by competent business entities.

PEST Analysis of Tesoro

Under this section, the paper shall explore on how the political, economic, social and technological factors have and shall likely govern the business environment for the Tesoro Corporation. Generally, the PEST analysis focuses on:

  • Political factors-Research indicates that the trading environment of petroleum based products has experienced tough environmental laws as well as increased regulations. This has impacted greatly on the performance index of the Tesoro Corporation and other related business firms. For instance, the period between the years 2007 through 2009 was characterized with tough environmental laws. However, the state of infrastructure and security has favored the petroleum industry. The energy independence and security Act are among the regulations defining laws related to the energy sector which Tesoro falls under (Ibisworld.com, 2014).
  • Economic factors-The Tesoro together with other business entities have experienced high taxation over the recent past. This was especially in attempts to cater for pollution control issues. Also, the US has been in a state of recession where buy prices of petroleum products were considerably low. This has affected the revenue ranges for the related firms. However, it is predicted that with the stabilization of the currency, the prices are bound to go high and exports will be a good source of revenue for the Tesoro (Businessweek.com, 2014). Also, the industry is capital intensive, which has affected the running and operations of Tesoro.
  • Social factors-the US harbors skilled labor, which has been an advantage of the oil and gas industry. Also, labor laws in the US are not that strict to derail the prowess of the oil and gas industry. Besides, the future is promising.
  • Technological factors –from the very onset, the paper addressed the state of technology in the petroleum refining industry as very slow to changing demands. This has therefore incapacitated the output of the Tesoro. However, the industry stands a good chance of improving technology to meet changes in energy demands, lifestyles and thus costs.

The Porter 5 forces in the Tesoro's context

At this juncture, it becomes important to engage the porter 5 criteria to establish the future of the Tesoro Corporation as well as entire petroleum refining industry in the US. Just to mention, the porter 5 analysis has been a criterion which serves as a strong business tool for determining where the power of a firm lies. The criterion provides a platform for checking 5 aspects: supplier power, buyer power, competitive rivalry, threat of substitution as well as the threat of new entry.

From the above analyses, it beats logic to declare the Tesoro cooperation as powerful in all aspects except that it could easily be substituted by other market players if its management does not embrace technology. In all other aspects, the corporation is generally stable and authoritative to make its choices (for supplier, buyer and rivalry). Threat of new entry is practically minimal since entry into the oil and gas industry is dependent on capital intensive decisions as well as tough regulations (Ibisworld.com, 2014). Thus the firm is competitively powerful and stands excellent chances of taking the lead in the industry.

Conclusion

The Tesoro Corporation is one of the leading industry players in the US energy's Oil and gas sector and has grown to an international level in the dissemination of its services. The refining industry has faced and still faces many challenges despite of which the corporation seems to cope with. It has its products marketed under renowned brands such as the Tesoros, USA gasoline, and Mira star, Mobil, ARCO and Shell. Analysis based on SWOT and PEST as well as the porter 5 forces criterion shows a sustained future for the Tesoro Corporation as well as the Oil and gas industry at large, which remains competitive and faces heavy regulations (Datamonitor-Firm, 2000). Generally, the company's power lies within its managerial abilities to keep up with the pronounced competition especially from company's such as shell, Philips66, marathon Exxon Mobil and Marathon petroleum Company.

References

Businessweek.com,. (2014). TESORO CORP (TSO:New York): Company Description - Businessweek. Retrieved 4 May 2014, from http://investing.businessweek.com/research/stocks/snapshot/snapshot_article.asp?ticker=TSO

Datamonitor (Firm). (2000). Tesoro Corporation. New York, NY: Datamonitor.

Ibisworld.com,. (2014). Petroleum Refining in the US Market Research | IBISWorld. Retrieved 5 May 2014, from http://www.ibisworld.com/industry/default.aspx?indid=449

Tsocorp.com,. (2014). About Tesoro - Tesoro Corporation. Retrieved 5 May 2014, from http://tsocorp.com/about-tesoro/