Marathon Petroleum to Acquire BP's Texas City Refinery
October 08, 2012
Marathon Petroleum Corp. (MPC) announced Monday that it has reached a $2.5-billion deal to acquire BP's 451,000-barrel-per-day Texas City refinery and a portion of its logistics and retail network in the Southeast United States. The deal will make MPC the country's fourth-largest refiner, and it will serve as a platform for the company to expand its footprint in the Southeast.
"This world-scale refinery and related assets complement our current geographic footprint and align well with our strategic initiative of growing in existing and contiguous markets to enhance our portfolio," said Gary R. Heminger, president and chief executive officer of Findlay, Ohio-based MPC in a press release. "This acquisition will provide MPC the opportunity to capture synergies across our existing Gulf Coast operations; optimize commercial and process improvements; expand our retail presence in the Southeast; and enhance our ability to sell products into export markets."
The Texas City refinery addition will bring MPC's total U.S. refining capacity to 1,644,000 bopd. By selling the facility, BP will concentrate its refining activities in the northern tier of the United States.
"Today's announcement is the second major milestone in the strategic refocusing of our U.S. fuels business," stated Iain Conn, chief executive of BP's global refining and marketing business. "Together with the sale of our Carson, California refinery, announced in August, the divestment of Texas City will allow us to focus BP's U.S. fuels investments on our three northern refineries, which are crude feedstock advantaged, and their associated marketing businesses."
BP has been investing heavily in its northern refineries. The company is engaged in a multi-billion dollar modernization of its 413,000-bopd Whiting Refinery in Indiana, an upgrade at its 234,000-bopd Cherry Point Refinery that will enable the Washington State facility to produce cleaner-burning diesel fuel and a gasoline production enhancement project at the 160,000-bopd BP Husky joint venture refinery in Toledo, Ohio.
BP, which announced in February 2011 that it was seeking a buyer for the Texas City refinery, stated Monday that the sale to MPC will bring the total value of its divestments since early 2010 to more than $35 billion. The company expects this total to reach $38 billion by the end of 2013.
Boasting a Nelson complexity index of 15.3, BP's Texas City refinery is positioned to provide products throughout the U.S. Gulf Coast, Midwest and Southeast as well as export markets. Currently the fourth-largest U.S. refinery, the Texas City facility will be the highest-complexity refinery in MPC's portfolio.
With 20 process units, Texas City can process a wide variety of crude oils and has access to Permian, Canadian, Eagle Ford, Gulf Coast and eventually Bakken crudes via pipelines and waterborne cargoes. It houses a 233,000-barrels-per-calendar-day (bpcd) heavy-sour crude unit and a 218,000-bpcd medium-sour crude unit. In addition, its bottoms upgrading capacity comprises a 63,000-bpcd resid hydrocracker and 29,700 bpcd of coking capacity.
Gasoline makes up approximately 31 percent of the refinery's product slate. The distillates jet fuel, kerosene and diesel make up another 33 percent. MPC plans approximately $170 million on capital investments through 2016 on dock upgrades and storage tank additions and connectivity.
In addition to the Southeast Texas refinery, the deal includes Marathon's acquisition of the following: three intrastate natural gas liquids (NGL) pipelines originating at the refinery, an allocation of BP's Colonial Pipeline Co. shipper history, four terminals in the Southeast, retail marketing contract assignments for approximately 1,200 branded sites and the 1,040-megawatt cogeneration (cogen) facility.
Subject to applicable consents, BP will transfer 50,000 bopd of its Colonial Pipeline shipper history to MPC. The four product terminals that BP will divest are located in Nashville, Tenn., Jacksonville, Fla., and Selma and Charlotte, N.C. BP will assign to MPC certain branded jobber contracts supplying retail sites in Alabama, Florida, Mississippi and Tennessee. The branded-jobber contracts represent approximately 64,000 bopd of gasoline sales in the Southeast. The South Houston Green Power cogen facility provides steam for the refinery and local third-party facilities. It also provides electricity for the refinery; surplus power is sold to the utility grid.
BP also stated that it will maintain ownership of its Texas City Chemicals complex, an independent facility located near the refinery. The petrochemicals plant will maintain long-term commercial arrangements with the Texas City refinery.
Marathon's base purchase price is $598 million, plus an estimated $1.2 billion in inventories. MPC could also pay up to an extra $700 million over six years under a conditional earnout provision within the agreement. MPC expects the transaction, which it will fund with cash on hand, to be accretive to earnings in the first year of operation. Pending customary closing conditions and regulatory approvals, the acquisition could close early next year.
"This sale will reduce BP's presence in the Southeast U.S., however BP remains firmly committed to growing and strengthening our BP-branded retail network and the value of the BP brand east of the Rockies in partnership with BP-branded jobbers and dealers," Doug Sparkman, president of BP's East of Rockies fuels business, said in a BP press release. "A number of valued jobbers are affected by this transaction and we are committed to working very closely with Marathon Petroleum to make this transaction as smooth as possible."
BP stated that it will continue to market in the Southeast through more than 100 retained jobbers and approximately 2,400 branded retail outlets. It will continue to supply retained BP-branded customers through its logistics network, including the four divested terminals in Florida, Tennessee and North Carolina.
"BP has made significant investments to improve the safety, reliability and environmental performance of the refinery in recent years," concluded Heminger. "We will leverage those investments in the refinery with our continuing focus on safe and reliable operations. In addition, we have been part of the Texas City community for many years through our Texas City refinery, and this acquisition will deepen our commitment to that area."
BP acquired the 78-year-old Texas City refinery through its 1998 merger with Amoco. Seven years later, an explosion and fire at the facility's isomerization unit killed 15 workers. The March 23, 2005, incident resulted in large federal fines for BP, an even larger legal settlement and widescale safety improvements at the facility.
In a conference call Monday with analysts -- who roundly praised the deal -- MPC executives said that the company has conducted extensive due diligence. They added that they are very satisfied the refinery will meet MPC's expectations in terms of safety, reliability and profitability.
Rich Bedell, MPC's senior vice president of refining, complimented BP on its efforts to revamp the personal and process safety culture at the refinery over the past several years.
"The plant's a very different place than it was in 2005," Bedell said. "It isn't the same refinery as it was in 2005."
MPC plans to file its sales and purchase agreement with the U.S. Securities and Exchange Commission on Tuesday as a result of Monday's Columbus Day holiday.
Source: DownstreamToday Staff
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