Tesoro to Purchase Shell Refinery, Retail Sites in California

The oil refiner Tesoro Corp. will buy a Los Angeles-area refinery and 250 Southern California retail sites from a division of Royal Dutch Shell PLC for $1.63 billion.

The company said Monday its board approved the deal with Shell Oil Products US. The sale is subject to regulatory clearance. The price does not include the value of petroleum inventory that will also be acquired when the deal closes. That is expected to be up to $200 million.

Besides the Wilmington refinery, the deal also includes Shell’s Wilmington products terminal.

San Antonio-based Tesoro said it signed a long-term agreement that will keep the retail sites, each of which averages sales of 225,000 gallons per month, under Shell’s brand name.

Tesoro said it anticipates the deal will be completed in the second quarter of this year.

“It really just completes the Pacific Rim strategy that we have had,” said Bruce Smith, Tesoro chairman and CEO said Monday. “This just fits into the rest of our system just perfectly.”

The Los Angeles refinery processes heavy, sour crude.

“We don’t have a refinery that has this type of complexity and processing capability,” Smith said. Tesoro currently operates six refineries with a total capacity of 560,000 barrels per day. Tesoro retail system includes 450 branded retail stations, with 200 of those operating under the Tesoro and Mirastar brands.

Shell’s Wilmington refinery has a capacity of about 100,000 barrels per day.

Smith said few, if any jobs will be lost in the transaction, on which Lehman Brothers served as Tesoro’s financial adviser.

Tesoro shares closed up $4.73, or 6.4 percent, to $78.55 in trading on the New York Stock Exchange after rising to a new 52-week high of $79.34 earlier in session.

Tesoro also announced Monday that its board has approved an agreement to purchase 140 USA Petroleum Corp. retail sites, most of which are in California, a New Mexico terminal and the USA brand for $277 million. That does not include the value of inventory when the deal closes, which could be up to $15 million.

Of the sites, 125 use the USA brand. Tesoro said the 132 California sites include the 122 stations owned by USA Petroleum that oil company Chevron Corp. planned to acquire last year. Chevron called off the acquisition in November.

The sale is subject to regulatory clearance and Tesoro said it expects the deal to be completed in the second quarter.

The announcements came as Tesoro reported its earnings for the fourth quarter. The company said that robust refining margins led to a more than doubling of fourth-quarter profit, despite a drop in revenue.

Net income grew to $158 million, or $2.28 per share, from $69 million, or 97 cents per share, a year ago.

Revenue fell by 8 percent to $4.02 billion from $4.36 billion a year earlier. Operating expenses and sales costs fell by 10 percent to $3.65 billion.

Analysts polled by Thomson Financial expected the refiner to earn $1.91 per share.

Full-year earnings rose to $801 million, or $11.46 per share, from $507 million, or $7.20 per share, in 2005. Annual revenue increased to $18.1 billion from $16.58 billion.

Tesoro: http://www.tsocorp.com

Shell: http://www.shell.com