British Firm Will Buy Big Refinery in Wilmington
A British oil and gas firm outbid several larger competitors and will acquire a major Southern California oil refinery for $440 million from Union Pacific Corp., the current owners said Thursday.
Ultramar PLC, which already operates in California through its Beacon Oil Co., agreed to buy a 100,000-barrel-per-day refinery in Wilmington, near Long Beach.
The facility also is understood to have attracted bids from Unocal and industry giants Exxon and British Petroleum, both eager for refinery capacity in the lucrative Southern California market.
Known locally as the Champlin refinery because it was owned by the old Champlin Petroleum Co., since acquired by Union Pacific, the plant was modernized in recent years and is considered one of the state’s most sophisticated. It processes California crude into unleaded gasoline, diesel and jet fuels for sale to independent marketers.
Beacon Oil owns about 300 service stations under the Beacon brand, most of them in the San Joacquin Valley. Since it closed a small, outmoded refinery near Fresno last year, the firm has been buying oil products on the spot market.
If the deal is closed as expected by Dec. 1, the new acquisition will supply the Beacon outlets as well as other customers, said a senior Ultramar executive in Tarrytown, N.Y. Though most of the firm’s shares are owned in Britain, its management is headquartered in Tarrytown.
Beacon sold about 54,000 barrels per day of gasoline and other products in California last year. Ultramar also owns a refinery and service stations in Quebec, Canada; oil and gas reserves in Britain’s North Sea, and natural gas in Indonesia.
Borrowed Money
Net income was $88.5 million last year on sales of $1.96 billion.
A London-based analyst described Ultramar as “highly leveraged,” and the company said it would borrow half the money to pay for the refinery and issue new shares to raise the rest. The executive, who asked not to be identified, estimated its debt at 60% to 70% of equity.
“We’re comfortable with that. What is highly leveraged?” the executive asked.
Analysts were divided on whether Ultramar paid too much for the refinery. James McDonald, a long-time Los Angeles consultant and oilman, said flatly, “It’s not worth it.”
However, McDonald and others say California is a gold mine for refiners because plentiful supplies of crude from Alaska and the state’s own oil fields keep feed stock prices down. Environmental safeguards all but rule out new refineries, so the modern, existing ones are especially valuable.
The upgrading of the Wilmington refinery makes it “effectively one of the newest refineries in the state. It’s a real plum,” said a former Champlin executive. “The West Coast markets are the best in the world. You’re never going to see a new refinery in California, so when a good one comes on the market it brings a premium price.”
Strong Profits
In the first six months of 1988, Wilmington posted an operating profit of $33.9 million on turnover of $372.9 million, according to Ultramar. But after the announcement, Ultramar’s shares tumbled by 54 cents to $3.59 per share on the London Stock Exchange in a declining market.
Analysts said the purchase price was also enhanced by stepped-up competition for refineries across the country, triggered by strong refining profits and several recent moves by foreign governments to acquire U.S. refineries as assured outlets for their crude oil. The biggest example was Saudi Arabia’s recent agreement to buy three Texaco refineries and a chain of service stations in the southeast United States.
Union Pacific wouldn’t identify other bidders but said none was a foreign government. However, Ultramar becomes the second foreign interest to buy into a California oil refinery in recent weeks. In August, the government of China agreed to buy half of a refinery in Hercules, near San Francisco, from Coastal Corp.
In addition to the padlocked refinery near Fresno, Ultramar owned a refinery in Carson that it closed several years ago as outmoded.
