Tesoro to Buy Valero Oil Plant in California

Tesoro Petroleum Corp., which bought refineries in Utah and North Dakota in November, agreed to pay $1.08 billion in cash for a California oil refinery that U.S. regulators required Valero Energy Corp. to sell.

The 168,000 barrel-a-day Golden Eagle plant outside San Francisco would increase Tesoro’s capacity by about 40% to almost 560,000 barrels a day, the company said. Tesoro also is gaining 70 Beacon gasoline stations in Northern California and would own about 750 stations after the purchase.

The acquisition would expand Tesoro’s business in the state, where refining margins have been wider than the rest of the U.S., and allow the company to process heavier oil shipped from its plants in Alaska and Washington. San Antonio-based Tesoro now owns 30 gas stations in California.

“This really fits Tesoro’s strategy of building up its refining and marketing in the western half of the U.S.,” said Jacques Rousseau, an analyst with Friedman, Billings, Ramsey & Co. California margins are typically double what they are in the rest of the country, he said.

Tesoro expects the purchase to add immediately to earnings. The company is forecasting per-share earnings of $2.35 to $2.50 this year and $3 to $3.25 next year, assuming average refining margins, Chief Executive Bruce Smith said on a conference call with analysts and investors.

The company plans to sell bonds and $250 million in common shares to fund the transaction, which is expected to close in April, Smith said. It expects $30 million to $50 million in annual savings from the purchase.

Shares of San Antonio-based Valero fell 11 cents to $45.38 on the New York Stock Exchange. Tesoro gained 84 cents to $14.87, also on the NYSE.