BP’s Texas City Refinery on the Block (BP, MPC, MRO, VLO, TSO)

According to a report in the Financial Times, discussions are currently underway with Marathon Petroleum Corp. (NYSE: MPC), a company formed a little more than a year ago from the refining and downstream assets of Marathon Oil Corp. (NYSE: MRO). BP reportedly also has discussed selling the 475,000-barrel a day plant to Valero Energy Corp. (NYSE: VLO), but apparently Valero was not interested.

The refinery is the third-largest in the United States and could fetch about $2.5 billion, which would put BP’s total asset sales at near $35 billion so far. Another independent refiner, Tesoro Corp. (NYSE: TSO), bought BP’s Carson, Calif., refinery last month for $2.5 billion. The Carson refinery is smaller, with a capacity of 266,000 barrels a day, but the sale price included the oil inventory and BP’s ARCO-branded retail outlets.

In 2005, an explosion at the Texas City refinery killed 15 workers, and BP has spent more than $1 billion in upgrades to the plant and paid more than $180 million in fines related to the disaster.

While buying a refinery may not seem like a good idea right now, BP’s Texas City plant is well-placed to export fuel as U.S. consumption continues to decline. And $2.5 billion is cheap compared with the time and cost to build a new refinery. If Marathon can figure out a way to finance this deal, it could work out very well for the company over the next few years.

Shares of BP are up about 0.5% in premarket trading at $43.10 in a 52-week range of $33.62 to $48.34.

Shares of Marathon Petroleum are inactive this morning after closing at $52.07 last night in a 52-week range of $26.35 to $56.22.

Paul Ausick