The Los Angeles Times
A San Antonio oil refiner is shaking up California’s gasoline business by agreeing Monday to buy Shell Oil Co.’s Wilmington refinery and 390 Shell and USA gasoline stations for more than $2 billion.
Tesoro Corp.’s buying spree, laid out in two separate deals, would make it California’s second-largest refiner, and marks the company’s return to the state’s retail fuel market. The stations involved, primarily in Southern California, will continue to sell gas under their current brands, so drivers aren’t expected to notice much change initially.
Longer term, the state could benefit from the refinery’s switch to Tesoro because the company plans to expand production at the Wilmington plant and would stop making fuel for shipment to Arizona — moves that would boost the supply of California-grade gasoline.
“We are going to shift some gasoline back into the market, which will reduce the dependency on imports,” Tesoro Chief Executive Bruce Smith said. “That puts us in a position to meet new customer needs in the state.”
Tesoro plans to spend more than $1 billion on expansion, environmental and other projects at the plant over the next few years, Smith said. The refinery can process up to 100,000 barrels a day of crude oil, and the expected improvements would boost that figure by about 21,000 barrels a day, he said.
The company owns the Golden Eagle refinery in Northern California, which supplies about 6% of the state’s retail sales through various independent station owners in the Bay Area. The new stations would give it another 4.2% of the state’s fuel sales, the company said. Since selling its Beacon-brand stations to Thousand Oaks-based USA Petroleum Corp. several years ago, Tesoro hasn’t operated any retail gas stations in California.
The two deals strengthen Tesoro’s position in the West. The company owns refineries in California, Hawaii, Alaska, Washington, Utah and North Dakota and has more than 450 gas stations, more that half of which operate under the Tesoro and Mirastar brands.
Andre van der Valk, who owns two Shell stations and two independent outlets in Southern California, said he thought motorists would benefit from the two proposed transactions.
“I think it’s a good deal all the way around,” he said. “The consumer will benefit from having a non-major controlling a number of sites and a small market share.”
Jamie Court, a consumer advocate critical of the oil industry, isn’t so sure. He’s worried that competition could suffer with the sale of the USA stations — the state’s largest chain of independent outlets — to Tesoro.
“You could be trading one gorilla for another,” said Court, president of Santa Monica-based Foundation for Taxpayer and Consumer Rights. “The question is, will this change the way the game is played, or will it just mean that the game’s played the same but with fewer independent stations in independent hands?”
Late last year, a deal to sell the USA stations to Chevron Corp. fell apart amid concerns from the Federal Trade Commission that the sale would reduce competition and hand more market to Chevron, already the state’s largest refiner and the second-biggest gasoline retailer behind BP‘s Arco brand.
The purchases from Shell and USA require regulatory approval and it is unclear how regulators will view the combinations given Tesoro’s growing presence as a refiner. Still, it isn’t a player in Southern California and would have only a meager retail presence in the state. Analyst Jacques Rousseau of Friedman, Billings, Ramsey & Co. said that the transfer between Shell and Tesoro wouldn’t alter the competitive picture enough to trigger regulatory concerns.
Smith said Monday that Tesoro wouldn’t just keep the USA name, but also would maintain its tradition of offering relatively low-priced fuel. He expects that the combination of halting gasoline shipments to Arizona and increasing production will increase the amount of gasoline available to independent stations in the region.
Shell agreed to sell the Los Angeles-area refinery to Tesoro for $1.63 billion, a price that includes some related pipeline and distribution assets. Tesoro would pay another $180 million to $200 million for the remaining fuel and crude oil inventory on-hand when the sale closes.
Tesoro said it would spend $277 million for 140 retail gas stations owned by USA Petroleum. The deal includes essentially all of USA’s California retail operation, plus a few stations in New Mexico and the Pacific Northwest. About 15 of the 132 California stations sell fuel under the Shell and Chevron flags, with the rest operating as USA outlets.
Tesoro said it expected both transactions to close in the second quarter.
Shell‘s Wilmington refinery, on 308 acres that straddle Pacific Coast Highway, employs about 500 workers and 300 contractors.
Shell, which has been unloading refineries and gasoline stations in recent years, said the deal “represents good value for our shareholders and … secures jobs and energy supplies for people in Southern California.” With the sale of the Wilmington facility, Shell‘s Martinez plant becomes the oil company’s sole California refinery. In 2005, Shell sold its Bakersfield plant to Flying J Inc. Shell said in a statement that it had “no current plans” to sell the Martinez refinery or any of its other remaining U.S. plants.
There are more than 1,200 Shell stations in California, including the 250 being transferred to Tesoro.
The deals were announced before the market opened, along with Tesoro’s fourth-quarter financial results. The refiner’s profit jumped to $158 million, or $2.28 a share, compared to $69 million, or 97 cents a share, in the fourth quarter of 2005. Revenue for the quarter fell to about $4 billion, down 8% from the year-ago period.
Shares of Tesoro rose $4.73, or more than 6%, to $78.55.
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