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HOUSTON -- A $2.5-billion agreement that calls for BP to sell Tesoro Corp. its ARCO retail network across the Southwest and its Carson, Calif., refinery includes approximately 800 dealer-operated sites in southern California, Nevada and Arizona, according to Tesoro.
The San Antonio-based company will also acquire the ARCO brand and associated registered trademarks, as well as a master franchisee license for the ampm convenience store brand. As part of the deal, BP will exclusively license the ARCO retail brand rights from Tesoro for northern California, Oregon and Washington and continue to produce transportation fuels at its Cherry Point, Wash., refinery. BP will also retain ownership of the ampm convenience store brand.
In total, the acquisition price includes $1.175 billion for BP's assets, plus the value of the inventory at the time of closing, which is expected to occur in mid-2013, as CSNews Online reported in a Breaking News Alert this morning. At current prices, the inventory is valued at approximately $1.3 billion.
"This transaction is a unique opportunity for Tesoro to combine the best aspects of two West Coast refining and marketing businesses, resulting in a more efficient integrated refining, marketing and logistics system," said Tesoro President and CEO Greg Goff. "Given Tesoro's existing operations on the West Coast and our understanding of the complexities and challenges of operating in California, we are well positioned to generate significant operational efficiencies, increase our ability to satisfy market demand and reduce stationary source air emissions."
The sale is part of a previously announced plan by BP to reshape its U.S. fuels business. In February 2011, BP announced plans to refocus its refining and marketing business on its northern U.S. refineries and find buyers for the Carson refinery and its Texas City refinery in Texas.
"Today's announcement is a significant step in the strategic refocusing of our U.S. fuels business," said Iain Conn, chief executive of BP's global refining and marketing business. "Together with the intended sale of Texas City, this will allow us to focus BP's operations and investments exclusively on our three northern U.S. refineries, which are crude feedstock advantaged, and their large and important marketing businesses."
In addition, the purchase price includes an integrated logistics system with an estimated master limited partnership value of about $1 billion. The assets include three marine terminals; four land storage terminals; more than 100 miles of pipelines, including connected access to the Los Angeles International Airport; and four product marketing terminals, providing extensive regional product distribution capabilities. The company intends to offer these assets to Tesoro Logistics LP (TLLP) in multiple transactions over the first 12 months post closing, driving a step-change in TLLP's enterprise value, according to a Tesoro release.
Finally, the transaction also includes two complementary assets that are located near the Carson refinery. The first is a 51-percent ownership in the 400-megawatt, gas-supplied Watson cogeneration (cogen) facility. This company-operated cogen -- the largest in California -- provides reliable electricity to the Carson refinery and sells excess electricity to the local utility grid. The second is a 350,000 metric ton per year anode coke calcining operation. This asset upgrades coke from the Carson refinery into valuable calcined anode-grade coke for the aluminum industry. These assets are expected to provide additional cash flow and drive earnings diversification for Tesoro.
"This is an exciting opportunity for Tesoro to drive significant shareholder value and is well aligned with our strategic priorities," Goff said.