BP to Offload Texas City Refinery - Analyst Blog

By Zacks.com, October 09, 2012, 03:50:44 PM EDT

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The U.K. energy giant BP Plc ( BP ) plans to offload its Texas City refinery as well as other properties to Ohio-based Marathon Petroleum Corp. ( MPC ). This move is integral to BP's efforts to realign its downstream portfolio.

Per the deal, along with this 475,000 barrel per day refinery, BP will shed a portion of its retail and logistics network in the Southeast U.S. The sale of this refinery, the third largest in the U.S., could fetch up to $2.5 billion for BP. This includes a base purchase price of $598 million, plus approximately $1.2 billion for inventories and an additional $700 million over six years subject to certain conditions.

This latest sale − which is expected to close by early 2013 − is in sync with BP's strategy to trim its U.S. refining capacity to half by the end of this year through the divestiture of the Carson refinery in Southern California and the Texas City refinery. BP has already disposed the Carson refinery in California to Tesoro Corporation ( TSO ) for $2.25 billion in August. However, the company intends to retain three core U.S. sites, Whiting in Indiana, Cherry Point in Washington and Toledo in Ohio.

Even before the Macondo accident, this Texas City facility witnessed a deadly explosion in March 2005. The incident took the lives of 15 workers and injured as many as 170, raising a safety alarm across BP's U.S. operations. Following this, the company shut down the refinery for about two years and incurred $1 billion in compensations to restore the unit. Again, in 2007, BP announced it spent $1.6 billion to recompense the sufferers.

Again, the present stream of negotiations is in line with BP's divestment program that sees the British major getting rid of its mature, non-core assets to create a portfolio with strong growth potential operating from a smaller base. The company is set to divest around $38 billion worth of assets by 2013, of which it has already announced disposals of more than $35 billion.

In recent times, BP has divested a number of non-strategic assets that include Gulf of Mexico (GoM) oil and gas assets to Plains Exploration & Production Co. ( PXP ) for $5.55 billion as well as its Canadian natural gas liquids business to Houston's Plains All American Pipeline LP ( PAA ) for $1.67 billion.

BP carries a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. We also maintain our long-term Neutral recommendation on the company.