Tesoro to buy Valero's Golden Eagle refinery in California for $1 billion

Feb. 5, 2002
Tesoro Petroleum Corp. Tuesday said it would buy the 168,000 b/d Golden Eagle refinery in the San Francisco Bay area from Valero Energy Corp. for $1.075 billion. Included in the sale are 70 service stations in northern California.

By the OGJ Online Staff

HOUSTON, Feb. 5 -- Tesoro Petroleum Corp. Tuesday said it would buy the 168,000 b/d Golden Eagle refinery in the San Francisco Bay area from Valero Energy Corp. for $1.075 billion.

Included in the sale are 70 service stations in northern California. The price will be $945 million plus the value of inventory at closing, estimated at $130 million. Also, Tesoro would make contingency payments of up to $150 million, which will be paid only if annual California refining industry spreads exceed the 1997-2001 average. The 5-year contingency period begins in 2003.

The acquisition expands Tesoro's combined refining capacity more than 40% to nearly 560,000 b/d. Its branded retail network will expand to 750 locations, including nearly 100 stations in California.

The Federal Trade Commission had mandated the divestiture of the Golden Eagle refinery and service stations as a condition of Valero's merger with Ultramar Diamond Shamrock (OGJ Online, Jan. 2, 2002).

Tesoro said the transaction will be immediately accretive to earnings exclusive of synergies of $30-50 million/year. The transaction is expected to close in April and is subject to the customary legal and regulatory conditions. Tesoro will issue a combination of debt and equity to fund the transaction.

Bruce Smith, Tesoro chairman, president and CEO, said, "The sale gives good financial benefit to shareholders and permits both companies to move forward with their strategies. California gains a new competitor in its refining and marketing industry, one capable of offering additional gasoline supply from our other operations in the western US. And, the speed of the transaction will eliminate uncertainty for employees and permit a smooth integration.''

The Golden Eagle refinery makes 105,000 b/d of gasoline, about 70% of which is California Air Resources Board (CARB) Phase II gasoline. It is the largest producer of CARB diesel. A project is under way to increase CARB production.

Bill Greehey, Valero's chairman and CEO, said, "We plan to use the proceeds from the divestiture to pay down debt and buy back our stock. This will strengthen our balance sheet and position the company for future growth opportunities."