HOUSTON — BP agreed to sell its Texas City refinery, site of one of the deadliest U.S. industrial accidents in 20 years, to Marathon Petroleum for at least $598 million in cash, less than BP planned for the deal last year.
Marathon may pay as much as $700 million more over the next six years depending on the plant's profitability, the Findlay, Ohio-based refiner said in a statement Monday. With the $1.2 billion paid for inventories of oil and other products at the 451,000 barrel-a-day refinery, London-based BP may eventually collect a total $2.5 billion in the transaction.
Excluding the value of pipelines and a power generation facility, the base price paid for the Texas City refinery represents the lowest plant valuation since at least 1993, according to data compiled by Bloomberg Industries. The plant was expected to fetch more than the 10-year-average of $6,000 a barrel, or $2.85 billion, BP's head of refining and marketing, Iain Conn said in 2011.
"Marathon is picking this up for a song," Gianna Bern, president of risk-management consultant Brookshire Advisory and Research, Inc. in Chicago, said in a telephone interview.
Buyers were probably turned off by the plant's history, Bern said. In 2005, 15 workers were killed and hundreds injured at the refinery when a unit used to boost octane in gasoline overflowed as it was being restarted, igniting a blast that shattered windows five miles away.
BP pleaded guilty to a violation of the Clean Air Act and paid a $50 million fine. The company also paid $2.1 billion in settlements with blast victims and spent $1 billion upgrading the refinery. Three years of criminal probation for the company over the accident ended March 12. BP agreed to retain liability from any pending litigation and to pay any fines from regulators, Marathon Petroleum Chief Executive Officer Gary Heminger said Monday in a conference call.
The company, which was spun off last year from Marathon Oil Corp., will buy the refinery, three pipelines originating at the plant, four terminals, a shipping agreement, retail marketing contract agreements and a cogeneration facility, which can lower costs by generating power from the steam the refinery produces.
The transaction is expected to close in early 2013, pending regulatory approvals.
Marathon Petroleum expects the refinery to immediately boost its profit, reaping $700 million to $1.2 billion in earnings before interest, taxes, depreciation and amortization. Marathon already owns an 81,500 barrel-a-day refinery in Texas City, Texas, about 40 miles from Houston.
The company will pay for the transaction with cash on hand, according to the statement. The $700 million provision requires Marathon to pay BP half of the refinery's annual profits above a threshold of $1.65 billion a year, with a maximum of $200 million to $250 million a year over the next six years.