The $2.5-billion deal would boost Tesoro's West Coast presence and give BP cash it needs. It also would leave Tesoro and Chevron controlling more than half of California's gasoline production.
Texas oil giant Tesoro Corp. said it will spend $2.5 billion to buy a sprawling refinery in Carson and other assets — including the Arco brand — from rival BP.
The move would leave most of California's gasoline production in the hands of just two companies: Tesoro and Chevron Corp.
The deal would greatly boost Tesoro's presence in the region. The San Antonio company already has agreements with more than 1,200 stations nationwide that sell its gas under the Shell, USA Gasoline and Tesoro brands.
The planned acquisition, announced Monday, requires regulatory approval from both the Federal Trade Commission and the California attorney general.
It's already raising the ire of consumer advocates, who said the move could cut back on competition, which could lead to higher prices.
"This is not good for consumers," said Charles Langley of the Utility Consumers' Action Network in San Diego. "It's a purchase that should not be allowed."
Judy Dugan, research director for Santa Monica-based Consumer Watchdog, bemoaned the action regarding Arco stations. Arco is known for offering lower prices than many other brands. "Where is the working man and woman going to go now for a good price for gasoline?" Dugan said.
Tesoro agreed to pay $1.18 billion for the refinery and gas station agreements. In addition, Tesoro plans to spend about $1.3 billion for crude and other inventories at the Carson plant, according to a statement from the company.
The purchase would be the company's third plant in California, whose emissions regulations are more complex than other states'.
The Carson plant is next to Tesoro's Wilmington refinery, and the company projects it could save $250 million a year by combining the plants' operations.
"We are well-positioned to generate significant operational efficiencies, increase our ability to satisfy market demand and reduce stationary-source air emissions," Tesoro Chief Executive Greg Goff said in a statement.
If the deal goes through, Tesoro refineries in California would have a combined capacity of 528,000 barrels a day. That would be about 27% of all production in the state.
It would move the company just past Chevron, which has a refining capacity of about 503,000 barrels a day and a nearly 26% share. Together, the two companies would control 53% of gasoline production in the state.
Wall Street cheered the proposed acquisition. Tesoro stock rose 9.5% to close at $38.87. That was its highest closing price since February 2008.
"Tesoro knows the business and they know how to make California gasoline," said Phil Flynn, an analyst for the Price Futures Group in Chicago. "They do it as well or better than anyone."
Oppenheimer & Co. analyst Fadel Gheit said the deal would be good for both companies involved. "This gives BP more of the cash it needs and it strengthens
Tesoro on the West Coast," he said. BP, based in London, suffered one of the worst and most expensive oil exploration disasters when the 2010 explosion of the Deepwater Horizon, a drilling rig it was leasing, unleashed a huge oil spill in the Gulf of Mexico.
California's air quality standards require complex gasoline blends. The state's 14 refineries specialize in making that fuel.
When there is a problem, such as the fire last week at Chevron's Richmond refinery, gas prices surge.
In just one week, the average price of a gallon of regular gasoline in California climbed 22.8 cents to $4.096 on Monday, according to the Energy Department's weekly survey of service stations.
Gasoline prices also rose nationwide, but not nearly as much. The average price of a gallon of regular in the U.S. rose 7.6 cents to $3.721.
With gas prices heading up, regulators might feel pressure to be especially cautious about approving the Tesoro-BP deal.
Lynda Gledhill, a spokeswoman for the state attorney general, said that office would "take a serious look at the deal with the goal of preserving competition in the marketplace."
Peter Kaplan, deputy director of public affairs for the FTC, said Monday that the agency had no comment.
Bloomberg News was used in compiling this report.