Tesoro buying BP's SoCal refining and marketing business

SAN ANTONIO, TEXAS
August 13, 2012 10:05am

Tesoro Corporation (NYSE: TSO) of San Antonio, Texas, says it is buying the Southern California refining and marketing business of British oil and gas company BP (NYS: BP) for more than $1.1 billion plus the value of inventory at the time of closing. At current prices, the inventory is valued at about $1.3 billion.

It is subject to regulatory approval and is expected to close before mid-2013. The purchase price is expected to be financed initially through a combination of cash and debt, says Tesoro.

"This transaction is a unique opportunity for Tesoro to combine the best aspects of two West Coast refining and marketing businesses resulting in a more efficient integrated refining, marketing and logistics system," says Greg Goff, Tesoro’s president and CEO. "Given Tesoro's existing operations on the West Coast and our understanding of the complexities and challenges of operating in California, we are well positioned to generate significant operational efficiencies, increase our ability to satisfy market demand and reduce stationary source air emissions."

The Carson refinery is located south of Los Angeles and adjacent to Tesoro's Wilmington refinery.

The combination with Tesoro's current West Coast system is expected to drive significant operational synergies through the integrated supply of crude oil, enhanced optimization of intermediate feedstocks and product distribution costs, improvements in light product yield and reductions in manufacturing costs and stationary source air emissions, the Texas company predicts.

The combined and reconfigured operations are expected to drive annual synergies of approximately $250 million with an additional capital investment of approximately $225 million, Tesoro says.

The transaction also includes about 800 dealer operated retail stations in Southern California, Nevada and Arizona. The stations, averaging sales of over 245,000 gallons per month, ensure ratable off-take for refinery gasoline production, says Tesoro.

The company will also be acquiring the well-established Arco brand and associated registered trademarks, as well as a master franchisee license for the “ampm” convenience store brand.

In addition, the purchase price includes an integrated logistics system with an estimated master limited partnership value of about $1 billion. The assets include three marine terminals; four land storage terminals; over a hundred miles of pipelines, including connected access to the Los Angeles International Airport; and four product marketing terminals, providing regional product distribution capabilities, Tesoro says.

Finally, the transaction also includes two complementary assets that are located near the Carson refinery. The first is a 51 percent ownership in the 400-megawatt gas supplied Watson cogeneration facility, the largest of its kind in California. It provides electricity to the Carson refinery and sells excess electricity to the grid. The second is a 350,000 metric ton per year anode coke calcining operation. This asset upgrades coke from the Carson refinery into calcined anode-grade coke for the aluminum industry.