The state of California will review Tesoro's bid for BP's 266,000 b/d Carson refinery near Los Angeles to see if the deal would present any concerns over competition issues, a spokeswoman for the California Attorney General's Office said Tuesday.
"We will seriously look at the merger in the interest of preserving competition in the marketplace," spokeswoman Lynda Gledhill said in a phone interview Tuesday. "A review like this would probably take at least six months."
BP has agreed to sell its Carson refinery in California and related logistics and marketing assets to US refiner Tesoro Corp. for $2.5 billion, bringing the total value of the divestments BP has agreed since 2010 to $26.5 billion. This would give Tesoro the opportunity to combine the plant with its existing 97,000 b/d Wilmington refinery and create an integrated refining and marketing business.
Under the deal, Tesoro plans to acquire the Carson refinery and integrated terminals and pipelines, as well as marketing agreements with about 800 retail sites in Southern California, Arizona and Nevada.
On a phone call with analysts Monday, Tesoro officials said they did not plan to reduce capacity at the two refineries and that they expect the deal to close in early 2013.
Gledhill said she did not know if the state planned to hold a public comment period on the pending deal or if Tesoro would exceed an authorized market share with the BP refinery.
Analysts estimate that Tesoro would hold about a 28% share of the refinery market in the state after buying the BP refinery.
Tesoro "should have 28% of the California refining market when the deal closes, high but not excessive," Credit-Suisse analyst Edward Westlake said in a note Monday.
"Importantly the market is oversupplied with product, and there are five powerful competitors," Westlake said. "The merger of the refinery will result in lower emissions at a more effective capital cost to California consumers. While FTC concerns will be an overhang, we expect this deal to close."
Oppenheimer analyst Fadel Gheit said Tuesday in an email that he "specifically asked [Tesoro CEO Greg Goff about regulatory approval] and he said they did their due diligence for months with the help of outside experts on legal and legislative, labor, economics, and environmental matters and he feels very comfortable with all of them."
Like Westlake, Gheit is bullish on the possible acquisition, saying in a note to investors Tuesday that a "refining renaissance" is underway.
"We believe US refiners will continue to enjoy unprecedented competitive advantages due to: 1) wide crude price differentials, 2) cheap natural gas, 3) growing export markets, and 4) declining environmental spending. We expect these huge competitive advantages to continue for several years."
Gheit raised his price target on Tesoro to $50/share from $30, saying his estimate reflects the announced transaction, updated guidance and industry conditions.
"We believe this important acquisition will significantly strengthen TSO's competitive position and boosts its operating and financial results and valuation," Gheit said in his investor note.
On Monday's call, Goff called the deal "transformational" and said the combination of assets would increase Tesoro refining throughput capacity to just under 1 million b/d.
