Business
By Selam Gebrekidan and Michael Erman
Aug 13 (Reuters) - Tesoro Corp moved on Monday to create the biggest U.S. refining empire in the Pacific Basin with a $2.5 billion deal to buy BP's Carson plant in the isolated California market.
Shares in Tesoro shot up more than 9 percent, trading at$38.75.
If regulators approve the purchase, the independent refinerwill have three plants in California alone as well as threerefineries elsewhere in the Pacific region -- in Washington,Alaska, and Hawaii.
The Texas-based company plans to merge the266,000-barrels-per-day Carson plant with its 97,000-bpdWilmington plant, located next door, to form a 370,000-bpdrefinery, company officials said. It would be the largestrefinery west of Texas.
"Integrating the BP assets, specifically the logistics, isexpected to drive significant value throughout our West Coastsystem," said Gregory Goff, Tesoro president and chief executiveofficer.
The deal would give Tesoro nearly 700,000 bpd of refiningcapacity in the Pacific Basin, putting it ahead of Chevron Corp, which has 575,000 bpd of capacity as the top U.S.refiner in the region.
Tesoro is also buying storage and distribution assets fromBP, including more than 100 miles (160 km) of pipeline, threemarine terminals, four land storage terminals and four productmarketing terminals.
It plans to sell those assets to its master limitedpartnership, Tesoro Logistics LP, for around $1 billionwithin a year of closing.
Tesoro will acquire the Carson plant's inventories at thetime of the deal's closing, expected before mid-2013. Thecompany said it plans to pay for the purchase with cash on hand,inventory financing and debt that will be repaid after the saleof assets to Tesoro Logistics.
The deal with BP includes a retail marketing network ofabout 800 dealer-operated gasoline stations, ownership of BP'sArco brand, 51 percent-ownership in a company-operated400-megawatt cogeneration facility, and other assets.
Cut off from the rest of the country by a lack of connectinginfrastructure, California has traditionally been an isolatedmarket with strict fuel standards that limit importpossibilities. Plants there have not benefited from the shaleoil revolution in North Dakota and Texas that has driven downcosts for refineries operating in the Midwest and Gulf Coast.
WEST COAST GIANT?
The merger of the Carson plant with Tesoro's Wilmingtonrefinery -- which are separated by a fence -- should be finishedby 2015, with the completion of $225 million in spending forpipeline interconnections and improved hydrotreating capacityused to make greener fuels.
Tesoro will shift about 25 percent of the combined refiningcapacity to produce diesel to "meet the growing demand fordistillates on the West Coast," Goff said, and operations atsome redundant units will be reduced.
Overall annual cost savings were estimated at $250 million.
The acquisition will bring Tesoro's total refining capacityto just under 1 million bpd, Goff said. Tesoro also ownsrefineries in North Dakota and Utah.
However, the company plans to sell its 94,000-bpd Hawaiirefinery no sooner than the second half of 2012.
BP said in late July that it was in advanced talks on thesale of the Carson plant, as well as its Texas City, Texasrefinery. The oil major announced in February 2011 that it wouldsell the refineries by the end of 2012 as it reorients its U.S.operations to take advantage of growing Canadian crude supplies.
BP's North American products division, which oversees itsU.S. refineries, finished a three-year probation term in Marchthat stemmed from a 2005 explosion that killed 15 people andinjured many more at a refinery in Texas City.
BP also said on Monday that it would sell two processingplants and an associated gathering system in the Texas panhandleto Eagle Rock Energy Partners for $227.5 million.
