Tesoro will buy BP’s Los Angeles-area refinery for $2.5 billion

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BP is selling its Carson, Calif. refinery to San Antonio-based Tesoro for $2.5 billion, as part of BP’s strategy to focus on its refineries in the norther United States.

Tesoro, an independent refiner and marketer of petroleum products, will purchase the refinery and related assets for $1.175 billion, plus the value at closing of inventory now worth about $1.3 billion. The deal, which the companies expect to close in mid-2013, will be financed through cash and debt, according to a Tesoro statement.

“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,” CEO Greg Goff said in a written statement. ”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.”

Jason Gammel, an analyst with Macquarie Corp., said that the price is about $325 million lower than his firm had forecast.

“There are not that many buyers for refineries so it could be a reflection of the level of interest,” Gammel said. “Perhaps we were too optimistic about the state of the refining business.”

The deal marks a significant step in BP’s downstream strategy shift, which it announced in February 2011, and which also includes an effort to sell its Texas City refinery before the end of the year.

“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, which are crude feedstock advantaged, and their large and important marketing businesses,” said Iain Conn, chief executive of BP’s global refining and marketing business.

BP’s northern refineries include its Chery Point refinery in Washington State, the Whiting refinery in Indiana and a joint venture with Husky Energy in Toledo, Ohio.

Tesoro, through its subsidiaries, operates seven refineries in the western United States with a combined capacity of approximately 665,000 barrels per day.

BP Carson Refinery is the largest producer of low-emission gasoline, and also makes diesel, jet fuel, and petroleum coke. It produces about 25 percent of the gasoline in the Los Angeles market.

Analysts said that the infrastructure of pipelines and associated retail outlets helped make the refinery an appealing choice for Tesoro, which is already positioned in the California market.

“It was a nice fit for Tesoro,” said Jeff Dietert, an analyst with Simmons & Co. “They are looking to expand their footprint and Carson fit into Tesoro’s specific plan. They were able to get an integrated and full-bodied refinery, with marketing and retail.”

The Carson refinery has a production capacity of 266,000 barrels per day, making it BP’s second-largest refinery, after the Texas City refinery, and one of the largest on the West Coast.

BP acquired it when it bought ARCO in 2000. The sale announced Monday includes the refinery, a network of pipelines and storage terminals, and the ARCO-branded retail network in Southern California, Arizona and Nevada.