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Valero to Buy Exxon Refinery, Stations

Energy: Independent refiner will pay $895 million for the assets, ordered sold by FTC in approving the oil giant's merger with Mobil.


Exxon Mobil Corp. said Thursday that it has agreed to sell the Exxon refinery and gasoline stations in California to independent oil refiner Valero Energy Corp., in a deal that would inject a new competitor and brand name into the state's volatile gasoline market.

San Antonio-based Valero would pay at least $895 million for the oil refinery in Benicia, north of San Francisco, and 340 gasoline stations throughout the state. Valero would also pay an as-yet undetermined amount for inventories and working capital, which will be based on market prices upon closing of the deal.

The sale was ordered by the Federal Trade Commission as a condition of approval of the $80-billion merger of Exxon Corp. and Mobil Corp. in November. The sale to Valero still requires approval by the FTC and California Atty. Gen. Bill Lockyer.

After the sale, Exxon Mobil of Irving, Texas, would still operate a refinery in Torrance and 712 Mobil stations throughout California.

Lockyer, who is investigating gasoline pricing practices within the state, has said California's relatively high prices can be traced in part to the limited number of competitors here. A study he commissioned last year found that six companies produce and sell about 92% of the state's gasoline.

Valero said its entry will diversify the California market because it operates the only U.S. refinery outside California capable of producing the cleaner-burning gasoline that is required within the state. Valero would be able to use that refinery in Corpus Christi, Texas, to ease supply problems in California, said company spokeswoman Mary Rose Brown, who described the deal as "a win for consumers."

The purchase would give Valero its first retail outlets, with 80 company-owned Exxon stations in the Bay Area expected to switch to the Valero name by mid-June, Brown said. The 260 remaining stations, which are operated by independent dealers, would have the option of keeping the Exxon name.

Exxon sold nearly 9% of the gasoline in California in 1998, ranking it sixth among retailers, the Lockyer study determined.

"Our research shows that California consumers are eager to have an alternative to traditional retailers, and we plan to mount an aggressive advertising and promotional campaign to introduce the Valero brand," said Bill Greehey, the company's chairman and chief executive.

Greehey said the transaction, which is expected to close by June 15, would immediately begin to add to company earnings and cash flow.

The transaction was announced after the close of markets. On the New York Stock Exchange, Exxon Mobil shares rose 94 cents to close at $77, and Valero rose 63 cents to close at $27.

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