Net income was about 5 cents to 10 cents a share in the quarter, San Antonio-based Tesoro said in a statement. The company was expected to earn 42 cents a share, the average estimate from 18 analysts surveyed by Thomson Financial.

Tesoro's shares fell 82 cents, or 2.7 percent, to $29.49 at 2:35 p.m. in New York Stock Exchange composite trading. The stock traded as low as $28.25, the lowest since Nov. 9. Tesoro shares reached a record $34.65 in October.

Costs related to work on oil-processing equipment at the company largest refinery, the Golden Eagle plant in Martinez, California, cut fourth-quarter net income by 10 cents a share, Tesoro said. A unit at the plant that processes high-sulfur crude oil was idle from Sept. 6 to Oct. 31, forcing Tesoro to buy higher-priced, low-sulfur oil, spokeswoman Tara Payne said.

"This shows how much they rely on Golden Eagle, their big dog out there," said Bryan Caviness, an analyst at Fitch Inc., which rates Tesoro's debt at BB, two levels below investment grade. Reduced output from Golden Eagle "means they have to rely on capacity outside California, where margins are lower."

Fourth-quarter profit was also hurt by a power outage at a refinery in Hawaii and by a smaller-than-expected gap in December between crude-oil costs and fuel prices, the company said, Tesoro said.

Chief Executive Bruce Smith almost tripled Tesoro's refining capacity in the past three years by acquiring plants. Tesoro bought the Golden Eagle refinery from Valero Energy Corp. in May 2002, six months after acquiring two plants from BP Plc.

Refining margins on the U.S. West Coast fell in December to an average of $13.93 per barrel oil processed from $18.90 in October and November, according to data compiled by Bloomberg.

Nationwide, refining margins averaged more than $6.81 per barrel in October and November, based on New York Mercantile Exchange oil and fuel futures. In December, the U.S. average fell to $6.59.

Tesoro's lower-than-expected refining profit prompted Brian Bogart, a bond analyst at KDP Investment Advisors Inc., to cut his 2004 cash-flow estimate for Tesoro by 6.3 percent to $890 million. Bogart has a sell rating on Tesoro debt.

The refiner's 9 5/8 percent notes maturing in April 2012 fell 1.25 cents on the dollar to 113.5 cents on the dollar, according to Trace, the bond-price reporting system of NASD. The yield rose to 7.19 percent.

Tesoro had a per-share loss of 12 cents in 2003's fourth quarter. The company said it swung to a profit last year as production increased and interest expenses declined.