Engineering News

BP Agrees to $2.5 Billion Sale Of Carson Refinery To Tesoro
August 13, 2012

BP PLC (BP, BP.LN) said Monday it has agreed to sell its Carson refinery in southern California and related marketing assets to Tesoro Corp. (TSO) for $2.5 billion, as part of its $38 billion asset-sale plan intended to at least partially repay costs stemming from the Deepwater Horizon oil rig explosion and refocus the company after the subsequent Gulf of Mexico oil spill.

The all-cash deal brings BP closer to its goal to at least partially cover the huge cost of the deepwater well blow-out in the U.S. Gulf of Mexico that in 2010 killed 11 and unleashed the worst offshore spill in U.S. history.

The cash deal includes $1.3 billion for oil inventories at the site, based on current oil prices. The move comes days after BP said it had agreed to sell two natural gas processing plants and pipelines in Texas to Eagle Rock Energy Partners LP (EROC) for $227 million in cash, taking total divestments up to $26.5 billion since the beginning of 2010.

The agreement would also allow the U.K. oil giant to continue selling its crude oil to the refinery without having to worry about turning it into fuel in a state where stringent environmental regulations make refining a tough business, said Sam Margolin, an analyst with Dahlman Rose & Co.

"All in, considering that they still maintain their crude sales and don't have to compete for refining capacity in the long term, it's a good deal for them," Mr. Margolin said.

Aside from Carson, BP has sold 10 refineries in the last 10 years as it seeks to transform its refining business into one geared toward processing heavy Canadian oilsands crude and shale oil from northern states, where a bounty of cheap crude is boosting refiners' profits.

BP also seeks to sell its huge Texas City, Texas refinery, the site of a lethal explosion in 2005. The company is now in discussions with potential purchasers of the 475,000 barrel-a-day facility, and a deal is likely to take place before the end of the year as planned, said Iain Conn, chief executive of BP's global refining and marketing business.

"Together with the intended sale of Texas City, this will allow us to focus BP's operations and investments exclusively on our three northern-U.S. refineries," and their associated marketing businesses, which have access to better-priced crude feedstocks, Mr. Conn said. These refineries are in Indiana, Washington State and Ohio.

Last month, BP took a charge $2.68 billion in its second-quarter earnings because it expected to sell the two refineries for less than their holding value on its balance sheet.

Subject to regulatory and other approvals, Tesoro will close the deal for the 266,000 barrel-a-day refinery near Los Angeles, its associated network of pipelines and storage terminals, and the ARCO-branded retail network in southern California, Arizona and Nevada by the middle of 2013. The sale also includes BP's interests in associated cogeneration and coke calcining operations.

The deal doubles Tesoro's refining operations in California, making the San Antonio-based company the second largest refiner in the state after Chevron Corp. (CVX).

Although most refiners say the state's stringent environmental regulations make doing business there difficult, Tesoro's purchase would bring the number of its California refineries to three, accounting for 60% of the company's total refining capacity. Shares for the company soared recently 10% to $39.05.

Tesoro Chief Executive Greg Goff called the deal "transformative" for the company. The Carson refinery shares a fence line with Tesoro's 97,000 barrel-a-day Wilmington refinery, allowing Tesoro to combine the two into one facility and realize about $250 million in cost savings by 2015, Goff said during a conference call.

"That's real money," said Fadel Gheit, senior energy analyst at Oppenheimer & Co. "This is a major coup for Tesoro."

Tesoro said it has identified about $1 billion in pipeline and other logistic assets connected to the Carson refinery that it can sell to its master limited partnership Tesoro Logistics LP within 12 months of the refinery deal closing.

Combining the two refineries will make them efficient enough to meet the state's increasing air quality standards, Mr. Goff said.

BP shares were down 0.61% at $42.14 in recent trading.

Source: Dow Jones Newswires

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