A $325 million deal for
BHP Hawaii includes a refinery,
port facilities and 32 gas stations

By Russ Lynch and Rick Daysog
Star-Bulletin

A Texas company said today it has agreed to buy BHP Hawaii -- with its Barbers Point refinery, port terminal facilities and 32 BHP Gas Express retail gasoline stations -- for $275 million in cash plus a promissory note of $50 million.

San Antonio-based Tesoro Petroleum Corp. said it will buy all of the Hawaii operations, which employ 750 people, in a deal that is expected to close by the end of May.

Greg Wright, a Tesoro spokesman, said he couldn't say yet whether any jobs will be affected. "That's certainly something we'll look at, but until we get there and begin the integration (of Tesoro and BHP), I can't answer that," he said.

The $50 million promissory note will be paid in five annual installments of $10 million starting in 2009, although the payments could be speeded up depending on the profits of the Hawaii business, Tesoro said.

Officially called BHP Petroleum Americas Refining Inc., the Hawaii business was acquired from Pacific Resources Inc. in 1989 by Australia's biggest company, Broken Hill Proprietary Co., for $380 million

The refinery, Hawaii's biggest with a capacity of 95,000 barrels a day, was built 25 years ago to compete with the only other Hawaii refinery, owned by Chevron USA Inc.

Chevron's has a capacity of 55,000 barrels a day. The deal will end the Hawaii presence of BHP, which sold the Gasco synthetic household and commercial gas operation for $100 million last year to Citizens Utilities Co.

The Star-Bulletin reported in December 1996 that BHP, which has been undergoing a lengthy restructuring of its operations, was considering selling the Hawaii refinery.

Tesoro said today it approached BHP early last year to see if the two could make a deal.

"It was evident to us that there are many similarities that exist between the Hawaiian and Alaskan operating and marketing environments, said Bruce A. Smith, Tesoro board chairman, president and chief executive officer.

The deal fits in with Tesoro's strategy of focusing on markets that are dominated by one or two major players, said Craig Schwerdt, analyst with Cruttenden Roth Inc. in Irvine, Calif.

Such markets tend to be less competitive and allow the companies to generate a "reasonable profit," he said. Tesoro currently operates a 72,000-barrels-per-day refinery in Alaska, which has only one other refinery, Schwerdt said.

"From this standpoint, this is a highly attractive market for Tesoro," Schwerdt said. Both Hawaii and Alaska have a marine orientation on the Pacific Rim, a core market area, and "respect for operating in an environmentally sensitive area," Smith said.

Tesoro also expects to make money. Smith said the purchase will help it meet its target of increasing its per-share earnings by 30 percent a year over the next two years. He said the Hawaii business generates a cash flow of $45 million to $50 million a year.

Tesoro, which has 1,080 employees, owns a 75,000-barrels-a-day refinery in Kenai, Alaska; sells gasoline at retail stations throughout Alaska; and is a major supplier of jet and diesel fuel in Alaska. It also has an expanding retail network in the Pacific Northwest.

The deal could come under the scrutiny of state Attorney General Margery Bronster, who often reviews acquisitions and their anti-competitive affects.

Ted Clause, deputy attorney general, said he was unaware of the transaction until this morning and declined to comment on its potential impact on consumers.

Tesoro said the acquisition is subject to regulatory approvals.