Marathon Petroleum Picks Up Contracts for 1,200 BP Retail Sites

Deal for Texas City refinery offers company opportunity to grow retail brand in Southeast

Greg Lindenberg, Editor, CSP

FINDLAY, Ohio & HOUSTON -- Marathon Petroleum Corp. (MPC) has signed a definitive agreement to purchase BP's Texas City, Texas, refinery, related pipelines, four terminals and retail marketing contract assignments for approximately 1,200 branded sites for a base price of $598 million, plus inventories estimated at $1.2 billion.

The BP Texas City refinery provides products throughout the U.S. Gulf Coast, Midwest and Southeast, as well as into export markets. The light product terminals are in Jacksonville, Fla., Charlotte and Selma, N.C., and Nashville, Tenn.

The integrated acquisition also includes assignment of branded-jobber contracts supplying approximately 1,200 BP retail locations, representing approximately 64,000 barrels per day of gasoline sales, in the southeastern United States. The retail locations are primarily in Florida, Mississippi, Tennessee and Alabama. The stations will use the BP trademark during the transition process.

"We believe in an integrated business model that allows us to participate in the value chain from crude acquisition to refining and through to retail," MPC president and CEO Gary R. Heminger said during a conference call about the transaction. "This acquisition expands our integrated business and supports our strategy to grow in existing and contiguous markets."

The addition of the jobber sites "will provide additional scale to our ongoing strategy to grow the Marathon brand in the Southeast," he said. "This transaction provides a step change in the implementation of our strategy to grow our brand operations in the Southeast. It will nearly double our site count and will position us to expand our relationship with existing Marathon jobbers."

The retail sites' 64,00-bpd gasoline sales "approximates 40% of this refinery's gasoline production," said Heminger.

"This world-scale refinery and related assets complement our current geographic footprint and align well with our strategic initiative of growing in existing and contiguous markets to enhance our portfolio," Heminger also said in the statement announcing the deal. "This acquisition will provide MPC the opportunity to capture synergies across our existing Gulf Coast operations, optimize commercial and process improvements, expand our retail presence in the Southeast and enhance our ability to sell products into export markets."

As reported in a Raymond James/CSP Daily News Flash, BP, which announced the sale Monday, said it will remain a significant U.S. retailer of fuels, with approximately 8,000 BP and ARCO-branded sites in the Midwest, Pacific Northwest and along the East Coast.

"This sale will reduce BP's presence in the Southeast U.S.; however; BP remains firmly committed to growing and strengthening our BP-branded retail network and the value of the BP brand east of the Rockies in partnership with BP-branded jobbers and dealers," said Doug Sparkman, president of BP's East of Rockies fuels business. "A number of valued jobbers are affected by this transaction, and we are committed to working very closely with Marathon Petroleum to make this transition as smooth as possible."

Iain Conn, CEO of BP's global refining and marketing business, said, "[This] announcement is the second major milestone in the strategic refocusing of our U.S. fuels business. Together with the sale of our Carson, Calif., refinery, announced in August, the divestment of Texas City will allow us to focus BP's U.S. fuels investments on our three northern refineries, which are crude feedstock advantaged, and their associated marketing businesses."

He added, "BP remains committed to supplying U.S. customers with the fuels, lubricants and petrochemicals they depend on while at the same time delivering long-term growth and profits to our shareholders and we are pleased to be delivering on the strategy we announced last year. When we complete these sales and our Whiting Refinery upgrade project next year, we will have a smaller, well-positioned and highly competitive portfolio of refining and marketing businesses in the U.S."

Conn said, "Marathon Petroleum is a highly respected refiner and marketer. Their ability to take on the responsibilities of this large and complex refinery will be good for the long-term future of the business and its employees. Although largely a merchant refinery, we have decided to also sell certain terminals and marketing assets in the Southeast U.S."

With this deal, the total value of the BP's divestments since the beginning of 2010 is now more than $35 billion. BP expects this total to reach $38 billion by the end of 2013.

The agreement with MPC also contains an earnout provision under which MPC could pay up to an additional $700 million over six years, subject to certain conditions. MPC expects the transaction to be accretive to earnings in the first year of operation, expects to fund it with cash on hand and anticipates that the deal will close early in 2013, subject to customary closing conditions and regulatory approvals.

Houston-based BP markets more than 15 billion gallons of gasoline every year to U.S. consumers through more than 11,000 branded retail outlets and supplies more than four billion gallons of fuel annually to fleets, industrial users, auto and truck manufacturers, railroads and utilities. BP is the single, global brand formed by the combination of the former British Petroleum, Amoco, Atlantic Richfield (ARCO) and Burmah Castrol. BP is a global producer, manufacturer and marketer of oil, gas, chemicals and renewable energy sources.

Findlay, Ohio-based MPC is the nation's fifth-largest refiner. Marathon-brand gasoline is sold through more than 5,000 independently owned retail outlets across 18 states. Speedway LLC, an MPC subsidiary, owns and operates the nation's fourth largest convenience store chain, with approximately 1,460 stores in seven states. MPC also owns, leases or has ownership interests in pipelines that moves crude oil, feedstocks and petroleum-related products through the company's distribution network in the Midwest, Southeast and Gulf Coast regions.