The San Diego Union-Tribune

Just one month after declaring that prospects for a sale of its Bakersfield refinery had dimmed, Shell Oil Co. said yesterday it has reached tentative agreement to sell the plant to a Utah company that is the nation’s largest retailer of diesel fuel.

Shell‘s proposed sale of the refinery to a unit of Flying J Inc. could keep open the 73-year-old facility, which provides about 6 percent of the diesel and about 2 percent of the gasoline burned by the state’s truckers and motorists. Not only would the sale keep that supply flowing, but Flying J said it would double production of gasoline at the plant and more modestly increase its diesel output.

Based in Ogden, Utah, Flying J is a privately held company that reported sales of more than $ 5.6 billion in 2003. The company operates 165 travel plazas filling stations that include restaurants or mini-marts — in 41 states and three Canadian provinces.

Flying J, which has 12,500 employees, owns a refinery in Utah and is involved in oil exploration.

With California’s refineries straining to keep up with growing demand, and with fuel prices hitting record levels last year, consumer groups and California Attorney General Bill Lockyer had made it a goal to keep the Bakersfield plant open.

Lockyer last year launched an antitrust investigation of Shell after the company said it would shutter the refinery rather than seek a buyer. It planned to close the plant by Oct. 1.

The company said the supply of locally produced crude oil was declining and the plant could not be kept in operation economically. Lockyer hired a consultant, who concluded the plant could be operated profitably. Shell later agreed to delay the shutdown and pursue a sale. In December, prospects for a sale dimmed when Shell said negotiations with its leading bidder had broken down.

Yesterday, the attorney general cautioned that hurdles remain for keeping the refinery open.

“Our goal is to keep products flowing from the plant and have a new participant in the market to help make California more competitive,” Lockyer said. “What we’ve heard about the sale is positive, but we need to learn more about the details.”

Terms of the sale were not announced by either company. Platt’s Oilgram News reported that the sale price would be about $ 130 million. Flying J has agreed to abide by a collective bargaining agreement with unionized workers at the plant, which has about 210 employees and 150 contractors. A significant hurdle to completing the sale could be whether Flying J can obtain a waiver from new state air pollution requirements at the facility. The more stringent pollution requirement go into effect June 1. Flying J did not respond to a question regarding the length of the waiver it was seeking. The San Joaquin Valley Air Pollution Control District’s variance board has the authority to issue a waiver.

Shell had estimated the cost of meeting new pollution regulations would be $30 million to $50 million, spokesman Stan Mays said. The Foundation for Taxpayer and Consumer Rights in Santa Monica last year made public what it said were internal Shell documents indicating that the refinery was profitable. The consumer group, which said the documents came from whistle-blowers within Shell, alleged that the oil company planned to close the refinery to further tighten gasoline supplies in the state and drive up prices, which hit record levels last year and were among the highest in the nation.

“This is a national model for how whistle-blowers, consumer groups and elected leaders can work together to protect motorists from market manipulation,” said Jamie Court, president of the foundation.

“It’s also testament to the anti-competitive nature of the domestic refining industry that Shell had to be forced to collect a $ 130 million check for this sale instead of detonate a perfectly viable refinery.”

William Keese, chairman of California Energy Commission, said the state was in a gasoline bind because demand is growing at 2 percent annually but refinery capacity is growing at 0.6 percent. Not all refineries outside the state can produce the fuel blends required by California pollution regulations. With more refineries unlikely to be built, the state’s primary hope for boosting production is expansion of existing plants. Some operators have ruled that out because of difficulties in acquiring permits, Keese said. But he added that a proposed pipeline from Texas to Arizona could satisfy some of that market’s demand for fuel and eliminate the need for supplies from California, increasing the amount of locally produced fuel available for consumption in the state.