Flying J to Buy Shell Oil Refinery

Shell Oil Co. said Monday that it would sell its Bakersfield refinery to one of the largest truck-stop chains in the U.S., giving a surprise reprieve to California motorists.

The deal with Ogden, Utah-based Flying J Inc. came weeks before the facility’s planned March 31 closure. It could spare supply-strapped California the loss of 2% of its gasoline supply and 6% of its diesel.

Terms of the sale to closely held Flying J’s refining subsidiary, Big West Oil, weren’t disclosed. But sources familiar with the transaction said Shell -- which had planned to spend $200 million to clean up and dismantle the facility -- would receive $130 million for the 73-year-old refinery.

Hopes for a sale had been dashed last month when Shell said it had broken off negotiations with its leading suitor, New York investment firm Kelso & Co. Flying J was among a short list of earlier bidders.

“The continued operation of Shell’s Bakersfield refinery would be a victory for California drivers,” said state Atty. Gen. Bill Lockyer, one of several public officials pressuring Shell to sell the refinery.

“The state’s gasoline market is dysfunctional and plagued by supply problems,” Lockyer said in a statement. “The people who ultimately pay the price are our drivers, who shell out more at the pump than any other consumers in the nation.”

A bonus for consumers is that Big West would expand the refinery to boost its gasoline output, said Fred Greener, executive vice president of the Flying J subsidiary.

“I think it’s a great opportunity for us,” Greener said Monday. “We’re pretty excited.”

The purchase is subject to some regulatory approvals, but Greener said Big West hoped to complete it by the end of February. Big West would retain “a large portion” of the plant’s 210 employees and abide by the plant’s existing collective bargaining agreement, according to Shell.

In Bakersfield, refinery employees were surprised and cheered.

“It doesn’t get any better than this,” said one who asked not to be identified. “There hasn’t been anybody really happy around here in a long time.... Today everybody’s smiling, giving me thumbs up.”

Shell Oil President Lynn Laverty Elsenhans said in a statement that the company was “pleased with this sale agreement, which we recognize is important to many people in Bakersfield and beyond.

“While the facility is no longer strategic to Shell and does not meet our criteria for continued investment, Flying J sees an opportunity,” she said.

David Hackett, an industry consultant and president of Irvine-based Stillwater Associates, applauded the deal because it would keep the refinery open and “brings another competitor into the market who likely has fresh ideas.”

Flying J operates more than 165 truck stops in Canada and 41 states, including California, with diesel sales of more than $7 billion, Greener said recently.

The company’s Big West Oil unit operates a refinery in North Salt Lake City, Utah, where it processes 35,000 barrels a day of crude oil.

As for the 70,000 barrels a day of crude oil needed to run the Bakersfield refinery, Greener would say only, “We plan to have enough crude, and we have confidence that we will.”

Shell’s announcement in late 2003 that it would close the Bakersfield refinery by Oct. 1, 2004, sparked antitrust investigations by the state attorney general and the Federal Trade Commission.

The company said the refinery was no longer economically viable because of dwindling oil supplies in the San Joaquin Valley, where the plant draws its crude.

Shell had said it made no effort to sell the facility because no one would want it.

In recent weeks, pressure increased on Shell to make a deal as Lockyer issued subpoenas for documents, communications and notes related to the oil company’s negotiations to sell the refinery.

Flying J was founded in 1968 with four fuel stations by Osborne Jay Call, who was killed in a plane crash nearly two years ago.

Related companies offer a variety of services to truckers, including Internet access, insurance and truck fleet sales. Flying J’s sprawling truck plazas often feature convenience stores, restaurants, motels, banking facilities and even floral delivery.