Tesoro Corp. (TSO), the largest independent refiner on the West Coast, is interested in buying plants in the Midwest and western U.S., as the refining industry consolidates, according to its chief executive officer.
“The East Coast is not a part of the business that fits us, the Gulf Coast really doesn’t fit us, so that kind of leaves the rest of the country from the mid-continent to the West as potential opportunities,” CEO Gregory Goff said in an interview at the National Petrochemical and Refiners’ Association annual meeting in San Antonio today.
Tesoro, based in San Antonio, operates seven North American refineries that can process about 694,000 barrels of crude oil daily, according to Bloomberg data.
Oil companies from London-based BP Plc to El Dorado, Arkansas-based Murphy Oil Corp. (MUR) have announced plans to sell refineries to focus on production. The capacity for sale in the U.S. could reshape the independent refining industry as companies attempt to acquire those assets, Goff said.
The two BP plants for sale in Texas City, Texas, and Carson, California, exceed the total capacity of Tesoro’s network, with the ability to process a combined 741,000 barrels of crude oil daily, according to Bloomberg data.
New contenders from mergers and spinoffs, like HollyFrontier Corp. and Marathon Petroleum Corp. will have larger market capitalizations than Tesoro, according to Bloomberg data.
Smaller companies may see a more challenging environment, Goff said.
“In any industry that’s very driven by high fixed costs and is somewhat capital intensive, there are advantages to a certain type of scale to run in that business,” he said. “The next few years are going to be interesting and exciting times from a structural standpoint in the industry. There’s a lot going on.”
The most likely acquisition target for Tesoro would be a refinery in the Rocky Mountains, said Ann Kohler, an analyst at CRT Capital Group in Stamford, Connecticut, who rates Tesoro shares a “buy” and owns none.
Tesoro already owns two California refineries, so the company would face difficulties attempting to buy BP’s Carson plant due to potential antitrust concerns, she said in a phone interview. Other refineries for sale in the Midwest, such as Murphy’s Superior, Wisconsin, plant, would not be attractive because the company does not have retail capabilities there, Kohler said.
Goff, 54, became CEO the month after an April 2 chemical blast at the company’s Anacortes, Washington, refinery killed seven workers, making it the deadliest U.S. refinery accident since 2005.
Washington regulators in October fined the company $2.39 million, the largest penalty in state history for workplace safety violations. The Washington Department of Labor and Industries found that the company could have prevented the accident. Tesoro has disputed that assertion.
Independent refiners purchase the crude that they process.
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