Tosco Corp., the largest U.S. independent oil refiner, agreed Wednesday to sell the Avon refinery near San Francisco to rival Ultramar Diamond Shamrock Corp. for about $800 million.
Four workers died because of a fire at the refinery in February 1999, and Tosco has had difficulties satisfying regulators and government officials that the plant is being run safely and cleanly.
Avon, on San Francisco Bay, can process 168,000 barrels of oil a day into gasoline and other fuels. Tosco, based in Stamford, Conn., said it will make a small profit on the sale and will use the proceeds to reduce debt by $200 million and invest in projects that will provide better returns. The companies expect to close the sale by the end of the year.
The purchase will expand San Antonio-based Ultramar's operations on the West Coast, the most lucrative U.S. gasoline market. Ultramar has a refinery in Wilmington that produces 125,000 barrels a day. It owns a network of about 160 gasoline stations and 200-plus branded wholesale sites on the West Coast.
The purchase price includes $650 million in cash to be paid at closing, plus up to $150 million over the next eight years if profit margins reach certain levels. Ultramar will get about 800,000 barrels of inventory.
The purchase will add 90 cents a share to its annual earnings by the end of the first full year of operations, Ultramar said.
Government officials persuaded Tosco to shut down all or part of the Avon refinery last year for more than five months after the fire, the second fatal blaze at the plant in three years. The shutdown caused shortages that sent gasoline prices in California to the highest levels in almost three years and reduced Tosco's earnings. There was another fire at the refinery in June.
Ultramar Diamond Shamrock plans to increase output of refined products from the facility, including gasoline and diesel.
Earlier this year Ultramar tried to buy Exxon Mobil Corp.'s Benicia refinery in California but lost out to San Antonio-based Valero Energy Corp.
The announcement came after the close of trade. On the New York Stock Exchange, shares of Tosco fell 41 cents to close at $28.44, and Ultramar's shares fell $1.06 to close at $24.44.