Refineries don’t often have curb appeal, all-new kitchens, quaint charm or many of the other amenities folks use to sell houses.
So, in marketing its Texas City refinery, BP has to turn to other selling points – including a Gulf Coast location convenient to shipping and energy infrastructure and $1 billion in renovations. The company also has to get past a troubled legacy. Fifteen workers died there in a 2005 explosion, and it has a history of other fatalities.
BP has said it plans to sell the refinery by the end of 2012. But to whom, and for how much?
The company has had the Texas City refinery and one in Carson, Calif., on the block as part of a plan to divest $38??billion of assets by the end of 2012. On Monday, it announced that San Antonio-based Tesoro Corp. is buying the Los Angeles-area refinery along with some other BP assets including Arco-branded gas stations.
BP gave no update on the status of its efforts to sell the Texas City property, but analysts said that the $1.2 billion price tag for the one in California is lower than predicted, and may reflect a buyer’s market.
Jason Gammel, an analyst with Macquarie Capital, estimated that the Texas City refinery, which has almost twice the refining capacity of Carson, could be worth $2 billion.
The refinery is spread over a 1,200-acre campus and can process 475,000 barrels of oil per day.
Speculation has focused on a wide range of prospective buyers, including Valero, Marathon Petroleum, Brazil’s Petrobras or Chinese investors.
Prospective purchasers aren’t talking specifically about whether they’re eyeing the Texas City plant, but San Antonio-based Valero has described what it looks for in a refinery, listing many of Texas City’s characteristics.
“We like large refineries, we like complex refineries, we like refineries with water access, to bring feedstock in, and send product out by ship,” Valero spokesman Bill Day said. “We believe that a refinery along the Gulf Coast is more advantageous than other parts of the country, because of advantages of water access, the availability of crude oil, access to export markets and low cost of doing business relative to the rest of the U.S.”
Valero’s Gulf Coast portfolio includes another refinery in Texas City, with a production capacity of 245,000 barrels per day, and one in Port Arthur.
Besides the size and location factors cited by Valero, the Texas City refinery is alluring because it can process more than 50 types of crude oil from all over the world into products including gasoline, jet fuel and ultra-low sulfur diesel.
“The competitive advantage in refining will be in buying the cheapest crude and using the refining advantage for the export markets,” said Roger Ihne, a partner at Deloitte& Touche.
The Texas City refinery’s size, complexity and proximity to the U.S. market also could appeal to an overseas company, Raymond James analyst Pavel Molchanov said.
“A refinery like Texas City doesn’t come on the market every day,” Molchanov said.
Its size and capacity will limit the list of potential buyers, analysts said, because of the purchase price and the costs of running the facility.
“A large refining company or a company with a large balance sheet is going to be better positioned to acquire this asset,” said Jeff Dietert, an analyst with Simmons & Company International. “For a smaller company, Texas City would overwhelm the portfolio and there would be more difficulty raising capital.”
London-based BP acquired the Texas City refinery, which has been in operation since 1934, as part of its purchase of Amoco in 1998.
On the downside, prospective buyers will have to decide how to factor its troubled safety history into the price. In 2005, a refinery explosion and fire killed 15 workers, and four more employees have died in separate accidents since then. The plant also faces lawsuits over the release of 500,000 pounds of chemicals into the atmosphere in 2010.
BP has made big investments in the refinery, spending more than $1 billion in equipment upgrades since 2005.
In July, BP resolved 409 of 439 citations issued by the Occupational Safety and Health Administration in October 2009 for safety management violations related to the 2005 blast. BP has agreed to pay $13 million in fines and has said it will resolve all existing violations by the end of 2012.
The remaining alleged violations involve settings of pressure release valves. BP believes the settings comply with industry standards and has said it is in negotiations with the regulator to resolve the remaining violations.
If not, the new owner will inherit this fix-it responsibility along with the keys to the place – a fact that appeals to worker groups.
OSHA citations carry over if a facility changes hands, said Kim Nibarger, a health and safety specialist for the United Steel Workers, which represents the operations and maintenance workers at the Texas City refinery.
“Whatever OSHA has cited will need to be remedied, either through settlement or litigation,” Nibarger said.
Any new owner also would be subject to the terms of a new contract the union negotiated in February.
BP has decided to focus its refining on the northern U.S., where it has three refineries – all with better access to heavy crudes coming from Canada and the Bakken Shale and the capability of processing it.
“We really do believe there are some natural buyers that can unlock this refinery’s full potential,” said Scott Dean, a spokesman for BP. “Our expectation is to identify a buyer, and we are making very good progress.”