Energy

BP Sells Texas City Refinery

courtesy BP plc
Marathon Petroleum Corp. (NYSE: MPC) announced this morning that it has purchased the 451,000 barrel per day Texas City refinery from BP PLC (NYSE: BP) for $598 million. Included in the sale are inventories for which Marathon will pay an additional $1.2 billion. The deal also includes a $700 million earnout over six years, which Marathon also would have to pay, subject to certain conditions.

Marathon will fund the acquisition from cash on hand and expects the deal to close early next year. BP had identified the refinery as one of the assets it planned to sell as it beefed up its cash position.

In 2005, the Texas City refinery suffered an explosion that killed 15 workers and cost BP $21 million in fines for safety violations, another $63 million for failing to correct some of the original safety violations, and more than $2 billion in compensation to families of dead and injured workers. BP also spent another $1.5 billion on safety enhancements and other improvements at the Texas City plant.

Marathon expects the Texas City plant, the third largest in the United States, to be immediately accretive to revenues. The acquisition includes an electricity co-generation plant at the refinery, three intrastate natural gas liquids pipelines, shipper contracts for 50,000 barrels a day on the Colonial pipeline and three light product terminals in the southeastern U.S.

Crude prices, which have been falling faster than gasoline pump prices, have made the past quarter or so a good time to be a refiner. But the refining business is extremely cyclical and can swing wildly on relatively small movements in crude prices.

Today, though, Marathon looks to have gotten a bargain. Building a refiner of the size and complexity of Texas City would likely cost four times what Marathon paid today.

Shares of Marathon are up 8.3% in the first half hour of trading today, at $59.40, a new 52-week high. The prior 52-week range was $30.24 to $58.27.

Paul Ausick

Want to Retire Early? Start Here (Sponsor)

Want retirement to come a few years earlier than you’d planned? Or are you ready to retire now, but want an extra set of eyes on your finances?

Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help you build your plan to retire early. And the best part? The first conversation with them is free.

Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.