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BP to divest half its U.S. refining capacity

February 1, 2011, 2:15 pm

Originally posted by Kristen Hays - Reuters - February 1, 2011

HOUSTON (Reuters) - BP Plc put half its U.S. refining assets up for sale on Tuesday, including the huge Texas City plant, a potentially prize asset but one that carries the stigma of a 2005 blast that killed 15 workers.

The move is the latest shake-up of the U.S. refining sector and comes amid a years-long downturn in American refinery profits that has spurred big oil companies such as Marathon Oil Corp (NYSE: MRO - news) to rethink the value of owning refining assets.

"They are basically trying to circle the wagon and protect the core assets. There's just not enough room in the portfolio for these two refineries," said Fadel Gheit, an analyst with investment bank Oppenheimer and Co.

For BP, the largest oil producer in the United States and its fourth-largest refiner, the move represents a chance to raise cash to pay for the disastrous 2010 Macondo oil spill in the Gulf of Mexico.

It will also be shedding a refinery that has been a long-standing target for critics of the company's safety record.

"It's past due in coming," said Brent Coon, a Beaumont, Texas lawyer who led blast-related civil litigation that cost BP $2.1 billion (1.3 billion pounds) in settlements. "I suspect a lot of people will say 'good riddance.'"

BP will seek buyers for its 437,080-barrels-per-day (bpd) Texas City refinery -- the third-biggest in the United States -- and the 265,000-bpd Carson, California refinery by the end of 2012.

The two refineries could bring in about $5 billion in total, according to analysts at Citi.

Those processing capacities are according to the U.S. Energy Information Administration, but BP says the Texas City plant can process up to 475,000 bpd. BP has spent over $1 billion in plant modernization but said the facility "lacks strong integration into any BP marketing assets".

The company said it plans to boost diesel production from its other U.S. plants, including at Whiting, Indiana and Cherry Point, Washington, where it can process a wider range of crudes including heavier grades.

The company is seeking potential buyers and offered no financial details of the planned sales, which would mark BP's departure from more than half its U.S. refining assets. The plans would comprise the biggest restructuring of BP's U.S. portfolio since the Gulf spill.

Valero Energy Corp (NYSE: VLO - news) spokesman Bill Day declined to comment on whether his company, the largest independent refiner, would be interested in either plant. Valero has refineries in the Los Angeles area and Texas City.

Day said Valero was interested in refineries near water, with large capacities and ability for complex upgrading, and close to other refineries.

Valero Chief Executive Bill Klesse told Reuters in 2008, when refineries were more profitable, that BP's Texas City plant would be a strategic acquisition.

Michael Gayda, president of PBF Energy, which has bought two Valero refineries on the East Coast and is buying a third from Sunoco Inc (NYSE: SUN - news) in Toledo, Ohio, declined to comment on whether his company would bid for the BP plants.

"Both are large, complex, very good refineries. But we don't comment on acquisition activity," Gayda said.


Meanwhile, BP on Tuesday posted weaker-than-expected fourth-quarter results and a highly anticipated return to paying dividends.

BP reported a loss of $4.9 billion during 2010, its first annual deficit in 18 years, and booked a charge of $41 billion related to the Gulf oil spill.

The company earlier said it planned to sell up to $30 billion of assets to help pay for the spill costs.

The company also plans to sell its fuel-marketing assets in California, Arizona and Nevada.

Byron Grote, BP's chief financial officer, told analysts on Tuesday that while the company's trading division posted losses in 2010 amid a lack of volatility in natural gas prices, he believed trading would improve this year.

The 2005 explosion at BP's Texas City refinery injured at least 180 people in addition to killing the 15.

The blast happened when a tower in the isomerisation unit, which increases octane in gasoline, overflowed with flammable hydrocarbons during startup that spewed liquid and vapour from a blowdown stack. Alarms and gauges that would have sounded were not working. The vapor ignited.

In addition to $2.1 billion spent to settle about 4,000 civil claims by the end of 2008, BP in March 2009 paid a $50 million fine to settle a felony criminal case centred on violations of the U.S. Clean Air Act.

BP's division that oversees U.S. refineries also pleaded guilty to a felony and agreed to be on probation for three years.

(Additional reporting by Joshua Schneyer, Selam Gebrekidan and Janet McGurty in New York (Xetra: A0DKRK - news) ; Editing by Dale Hudson)


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