* Deal increases Tesoro's market share, but remains No. 2
* California puts conditions on deal
By Diane Bartz and Erwin Seba
WASHINGTON/HOUSTON, May 17 U.S. refiner Tesoro
Corp. has received formal approval from antitrust
regulators in Washington and Sacramento on Friday to buy BP
Plc's 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
"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
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
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
Tesoro announced in August that it had agreed to buy BP's
Carson plant. 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.
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
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
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.