Some Interest in Avon Facility but No Hard Offers : Tosco Refinery Attracts Oil Firms
Tosco, the Santa Monica-based independent oil refiner, said Thursday that some major oil companies have approached it about buying its large Avon oil refinery, but so far Tosco hasn’t received any “hard proposals.”
Matthew J. Talbot, Tosco chairman and chief executive, told shareholders at the company’s annual meeting in Santa Monica that Tosco “would entertain any offer . . . but we don’t have anything to look at before us right now.” Talbot declined to say which companies expressed interest in the refinery. He said he couldn’t rate the seriousness of the overtures. “All I can say is that there are no burning discussions now,” he said.
The Avon refinery, located near San Francisco, can process 115,000 barrels of heavy California crude oil daily, producing mostly high-value, unleaded gasoline. Oil industry analysts say that few existing refineries can process large amounts of heavy crude oil as efficiently as the Avon refinery.
Tosco acquired the refinery in 1975 from Phillips Petroleum, which was under a court order to sell some of the Western properties that it acquired from Getty Oil. At the time of the sale, Tosco was enjoined from selling or leasing the plant to a major oil company for 10 years, or until July 1.
Oil industry analysts have speculated that Tosco might sell the refinery unless its financial health significantly improves. Thomas Lewis, an analyst with Duff & Phelps in Chicago, estimated the replacement value of the Avon refinery at $1.2 billion, and he said it would take about three years to build.
“Any company looking for additional capacity on the West Coast or looking for a refinery to process their crudes would be interested,” he said. Lewis said Sohio, with its rich Alaskan crude oil deposits, was a likely candidate. A Sohio spokesman declined comment.
Tosco’s stock rose 53% last week in heavy trading on the New York Stock Exchange, but the company said it didn’t know of any reason for the activity. On Thursday, it closed at $2.75, up 25 cents, as 137,500 shares traded hands--three times Tosco’s normal trading volume, according to analysts.
The once profitable Tosco was the second-largest independent refiner in the country until its investment in shale oil floundered and refining profits fell, both due to falling crude oil prices. Tosco reported a loss last year of $210.6 million, or $10.19 a share.
During the last three years, the company has reduced its number of corporate officers to nine from 32 by August and reduced its administrative operating costs from $75.7 million in 1982 to $30 million this year.
The company also closed two small refineries and sold its El Dorado, Ark., refinery earlier this month for $95 million. Last year, Tosco restructured $745 million of its bank debt, converting $149 million of it into preferred stock and rescheduling $605 million that was due in January. In March, its bankers agreed to defer interest payments until 1987 unless Tosco’s cash flow exceeded certain levels.
Talbot said that Tosco should earn a $10-million operating profit this quarter, thanks to improved gasoline profit margins, but that the firm needs to restructure $300 million in debt.
“We still face a very formidable challenge,” he said. Talbot said profits on gasoline have improved by 10 cents a gallon since February, but Tosco’s ability to negotiate a favorable debt restructuring depends to a large degree on whether those profit levels hold steady. “The next six months will be important for Tosco,” he said.