Tesoro to use $1 billion-$1.5 billion of financing to buy BP business

By Lisa Kerner

Charlotte, N.C., Aug. 13 - Tesoro Corp.'s acquisition of BP plc's integrated Southern California refining and marketing business is "transformational" for Tesoro, president and chief executive officer Greg Goff said during a conference call on Monday.

The acquisition is expected to close by mid-2013 and will be funded through a combination of cash and debt, said Goff. Tesoro will pay $1.18 billion plus the value of inventory at the time of closing. The inventory is currently valued at $1.3 billion.

Tesoro will use between $500 million and $750 million of cash and between $1 billion and $1.5 billion of interim financing.

Goff said Tesoro expects to pay down the debt within 12 months using proceeds from the sale of the associated logistics assets to Tesoro Logistics LP for $1 billion as well as $225 million to $300 million of proceeds from the sale of excess inventory and real estate.

The debt repayment will not impact Tesoro's quarterly dividend plans, share repurchases or the repayment of the company's 2012 senior notes, said Goff.

BP's logistics assets include three marine terminals, four land storage terminals, four product marketing terminals and more than a hundred miles of pipelines.

In addition to the logistics assets, Tesoro is acquiring BP's Carson refinery, adjacent to Tesoro's Wilmington refinery, and about 800 dealer-operated retail stations in Southern California, Nevada and Arizona, including the ARCO brand.

The transaction also includes two complementary assets that are located near the Carson refinery: a 51% ownership in the 400 megawatt gas-supplied Watson cogeneration facility and an anode coke calcining operation. Both operations are expected to provide additional cash flow for Tesoro.

At the end of the second quarter, Tesoro had $1.3 billion of cash and total debt to total capitalization of less than 28%.

The company expects to end 2012 with an even stronger cash position, and its balance sheet is the "strongest it's ever been," according to Goff.

Tesoro is a San Antonio-based petroleum refiner.

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