Tesoro Receives FTC Clearance to Buy BP's SoCal R&M Business
800 stations grows regional count to 1,350 outlets for combined refineries' gasoline production
SAN ANTONIO -- Tesoro Corp. said that the Federal Trade Commission (FTC) has cleared the company's planned acquisition of BP's fully integrated Southern California refining and marketing business--including the Carson refinery and retail network--and that Tesoro intends to close the acquisition during the second quarter, subject to customary closing conditions.
The clearance from the FTC came without any effects to the assets or operations in the transaction, which the companies announced in August 2012.
The purchase price of BP's assets is $1.075 billion, plus the market value of inventory, currently estimated at $1.3 billion. This amount includes a $100 million purchase price reduction for the clearance with regulatory authorities.
Along with the 240,000-barrel-per-day (bpd) Carson refinery, the transaction includes approximately 800 dealer-operated retail stations in Southern California, Nevada and Arizona, the well-established ARCO brand and associated registered trademarks, and a master franchisee license for the ampm convenience store brand. The addition of these high-volume retail outlets to Tesoro's existing retail network will result in a total Southern California station count of about 1,350 stations, ensuring ratable off-take for the combined refinery complex gasoline production.
This transaction is expected to drive the company's refining and marketing integration, a key strategic focus for Tesoro, to about 83%, a five percentage point improvement relative to today.
"We are pleased the FTC has concluded its review and we can close this transformational acquisition as planned," said Greg Goff, President and CEO. "This transaction is a unique opportunity for Tesoro to combine the best aspects of two West Coast refining, marketing and logistics businesses resulting in a more efficient world-scale integrated refining, marketing and logistics system."
Tesoro currently owns and operates 263,000 bpd of refining capacity in the state of California. Upon closing the transaction, Tesoro will begin the process of combining and reconfiguring the two West Coast systems to drive operational synergies through the integrated supply of crude oil, optimization of feedstocks and product distribution costs, improvements in light product yield and reductions in manufacturing costs and stationary source air emissions. This will include creating one Los Angeles refining complex by combining its existing Los Angeles refinery with the newly acquired and adjoining Carson refinery.
The company expects this work to result in annual synergies of approximately $250 million with an additional capital investment of approximately $225 million, with additional value from the crude oil sourcing flexibility..
The transaction also includes two complementary assets located near the Carson refinery. The first is a 51% ownership in the 400-megawatt gas-supplied Watson cogeneration (cogen) facility. This company-operated cogen, the largest in California, provides electricity to the Carson refinery and sells excess electricity to the local utility grid. After integration, the company expects the Watson cogen to provide electricity to Tesoro's Wilmington refinery, it said, driving additional operational availability. The second is a 350,000-metric-ton-per-year anode coke calcining operation. Tesoro said that it expects these assets to provide additional cash flow and drive earnings diversification.
Also, Tesoro and Tesoro Logistics LP have reached an agreement for TLLP to acquire a portion of the Carson logistics assets from Tesoro for an expected transaction value of approximately $640 million. They expect closing of the logistics transaction concurrent with the BP transaction close.
These assets, with expected annual logistics EBITDA of between $60 million to $65 million, include six marketing and storage terminal facilities with a total combined throughput capacity of about 225,000 bpd and approximately 6.4 million barrels of total storage capacity including 4.5 million barrels of dedicated commercial storage capacity. Tesoso said that it expects the transaction price to include cash of $544 million and Tesoro Logistics equity valued at $96 million.
The company said that it expects to enter into terminaling and throughput agreements with minimum volume commitments, consistent with prior transactions. Tesoro said that it will offer the remaining Carson logistics assets, consisting of dedicated storage capacity, pipelines and marine terminals, to TLLP within 12 months after closing and have an expected market value of between $450 million and $550 million.
It said that it expects to fund the estimated $2,375 million transaction with between $500 million and $750 million of cash, $500 million in term loan borrowings and nearly $550 million of cash proceeds from the acquisition of logistics assets by TLLP, sourcing the rest of the funds with borrowings under Tesoro's revolving credit facility, recently expanded to $3 billion.
"This is an exciting opportunity for Tesoro to drive significant shareholder value and is well aligned with our strategic priorities," said Goff. "For essentially the value of inventory, we are adding about a half a billion dollars of base annual EBITDA; expanding refining capacity by nearly 50%, excluding Hawaii; driving an over 60% increase in the enterprise value of Tesoro Logistics; and adding a pair of high-value complementary integrated assets."
San Antonio-based Tesoro is an independent refiner and marketer of petroleum products. Tesoro, through its subsidiaries, operates seven refineries in the western United States with a combined capacity of approximately 675,000 barrels per day. Tesoro's retail-marketing system includes nearly 1,390 branded retail stations, of which more than 595 are company operated under the Tesoro, Shell and USA Gasoline brands.