WASHINGTON/HOUSTON (Reuters) – Refiner Tesoro Corp. (TSO.N: Quote, Profile, Research, Stock Buzz) has received formal approval from antitrust regulators in Washington and Sacramento on Friday to buy BP Plc's (BP.L: Quote, Profile, Research, Stock Buzz) refinery and other assets in southern California for more than $2 billion.
Tesoro will not have to sell any of the assets anti-trust regulators said, but California officials demanded the company upgrade the refinery it was buying.
Californians regularly pay some of the highest gasoline prices in the nation. The state's average price for a gallon of regular unleaded gas is around $4.05, according to the AAA, formerly known as the American Automobile Association.
The Federal Trade Commission, which assessed the deal to ensure it complied with federal antitrust law, said there was evidence that combining the BP refinery and a Tesoro refinery, which nearly abut each other, could reduce the cost of producing the special, low-carbon gasoline that state law requires be sold in California.
"Demand for California-grade gasoline has declined over the last decade and is projected to continue to do so. Additionally, seven major refiners supply the West Coast, and that number will not change as a result of the deal," said the FTC said in a statement.
California Attorney General Kamala Harris also approved the transaction, saying her office and the California Energy Commission would monitor gas prices, volume and refinery capacity. A deal with the company also provides for safeguards against price spikes by maintaining capacity.
The state also received a commitment that Arco gasoline, which sells less expensive gasoline, would continue to do so. BP had supplied the chain from the Carson refinery that Tesoro is acquiring. It will be the fourth retail chain Tesoro supplies on the West Coast.
Tesoro also agreed to upgrade both its older Wilmington refinery and the Carson refinery that it is purchasing from BP to reduce greenhouse gasses.
"These are reasonable conditions," said David Hackett, president of Stillwater Associates, a refining consultancy in Irvine, California. "I think Tesoro can live with these without problems."
Liza Tucker of the advocacy group Consumer Watchdog said that Tesoro's pledge to Harris that it would slightly increase capacity and maintain it for three years was inadequate.
"I think that she did the best that she could but I don't think this is good news," said Tucker. "This is not good for the California consumer."
Tesoro announced in August that it had agreed to buy BP's (BP.L: Quote, Profile, Research, Stock Buzz) Carson plant. [nL2E8JD9ET] The final purchase price of the refinery and other assets is $2.375 billion, the company said in a statement.
Tesoro could take control of the assets as soon as June 1, sources familiar with the transaction told Reuters on Thursday.
Tesoro is the second-largest refiner in California, the nation's largest gasoline market, after Chevron Corp (CVX.N: Quote, Profile, Research, Stock Buzz).
Adding the Carson refinery to Tesoro's other two California refineries gives Tesoro a combined crude oil throughput of 509,800 bpd, or 26 percent of the state's refining capacity, according to data from the U.S. Energy Information Administration.
California is considered a virtual island for motor fuels, dependent on production from West Coast refineries or imports delivered by sea. The state has no pipeline connections to refining centers on the U.S. Gulf Coast and Midwest.
The sale includes an 800-station retail network and distribution and storage assets.
Once the transaction is closed, BP's U.S. downstream operation will be solely focused on refineries in the northern continental United States, where cheaper Canadian crude oil is easily obtained.
Tesoro expects to fund the estimated $2.4 billion purchase with between $500 million and $750 million in cash, $500 million in term loan borrowings and nearly $550 million from selling Carson refinery terminals and other logistics assets to Tesoro subsidiary Tesoro Logistics LP. Tesoro will get the rest from a $3 billion revolving line of credit.
The commission, which has one vacant seat, voted 3-0 to allow the deal to close. Commissioner Joshua Wright was recused.
(Additional reporting by Rory Carroll in San Francisco; Editing by Ros Krasny and Leslie Gevirtz)