BP gains $2.5bn for Texas City refinery

09 October 2012

Shaun Polczer, CALGARY: The sale of BP's Texas City refinery brings the UK supermajor closer to meeting a target of $38 billion in divestitures to pay for the Gulf of Mexico oil spill.

The $2.5 billion sale of the ageing facility to Marathon Petroleum brings the total raised by BP's divestiture programme, put in place to help it meet potential liabilities arising from the 2010 Deepwater Horizon disaster, to $35 billion.

Subject to regulatory and other approvals, Marathon will purchase the 475,000 barrel per day (b/d) refinery, associated natural gas liquids pipelines, a 1,040-megawatt cogeneration station and four marketing terminals and associated inventories.

BP will also assign branded contracts for approximately 1,200 retail sites in Tennessee, Mississippi, Alabama and Florida which could be supplied by the refinery. According to BP's Texas City refinery manager Keith Casey, the facility does not "fit with the long-term strategic direction of BP's global refining portfolio".

With the purchase, Marathon becomes the fourth-largest US refiner with 1.64 million b/d of capacity. News of the deal sent its shares to an all-time high of more than $60 on the New York Stock Exchange. Since going public in June 2011, when Marathon split its upstream and downstream divisions, shares are up nearly 50% and have doubled in the past 12 months.

"This is a unique opportunity to acquire world class refining assets at an attractive price," Marathon chief executive Gary Heminger told a conference call with analysts. At a cost of $328 per barrel of capability, the acquisition cost "is a fraction of the replacement price", he added.

Marathon will fund the purchase price with cash on hand.

Despite the seeming retreat from the Gulf Coast refining sector, BP said it would remain a significant retailer of fuels in the US, with approximately 8,000 BP and Arco-branded sites in the Midwest, Pacific Northwest and along the east coast. BP expects the deal to close by early 2013.

Together with the sale of Carson, California, refinery, announced in August, the divestment of Texas City will allow BP to focus its downstream investments on three northern refineries and their associated marketing businesses, which it describes as "feedstock advantaged".

The company is in the midst of a multi-billion dollar modernisation effort at its 413,000 b/d Whiting refinery in northwest Indiana. The 234,000 b/d Cherry Point refinery in Washington state is being upgraded to produce cleaner-burning diesel fuel. Meanwhile, the BP-Husky joint venture near Toledo, Ohio, is investing to improve gasoline making capabilities using oil-sands and heavy oil from their upstream partnership in Canada.

Texas City produces 150,000 b/d of gasoline processed from more than 60 different types of crude from around the globe, including light crudes from unconventional oil plays such as Eagle Ford and heavy oil from Venezuela and Canada. Marathon said it would be the most complex facility in its portfolio.

Since an explosion and fire on 23 March 2005, that killed 15 workers, BP said it has streamlined processes and improved safety. The facility returned to profitability this year.

Three natural gas liquids pipelines connecting the refinery with local suppliers are included in the sale. Subject to applicable consents, BP will also transfer 50,000 b/d of historical capacity on the Colonial pipeline that also supplies feedstock.

However, BP's adjacent Texas City chemicals complex is an independent facility and is not included in the sale. BP's petrochemicals plant will continue to have long-term commercial arrangements with the Texas City refinery, the company said.

The sale provides BP with cash to pay liability claims and penalties stemming from the 2010 Deepwater Horizon disaster. With cash in hand, it can now focus on rebuilding its US operations. BP remains the second-largest oil producer in the US, employing 23,000 people.

Between 2007-2011, the company invested more than $52 billion in US capital projects, more than any other producer. In the two years since the spill, it has paid $7 billion in claims and the company estimates another $7.8 billion are pending.



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