Tesoro May Reject Refinery Purchase

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Tesoro May Reject Refinery Purchase

SAN ANTONIO -- Shares of Tesoro Petroleum Corp. lost nearly one-fourth of their value Thursday, a day after the oil company reported a first-quarter loss and suggested it might back away from a $1.13-billion refinery purchase.

Tesoro reported a $55.6-million loss in the first quarter because of weak fuel margins, down time at a refinery in Washington and expenses tied to the planned purchase of Valero Energy Corp.'s Golden Eagle refinery near San Francisco.

Chief executive Bruce A. Smith told analysts the company might back away from the acquisition of the Valero refinery if the deal would cut too deeply into Tesoro's profits, the Associated Press reported.

"We will not close on the Golden Eagle asset if we are not confident we have adequate liquidity," Smith said. "Our intent is still to close the transaction."

Tesoro could be rethinking the deal because of its impact on its balance sheet and because the oil industry has just finished one of its weakest quarters in several years. Fitch Ratings Inc. estimates that the refinery purchase would increase Tesoro's debt-to-capitalization ratio to a steep 70 percent from 60 percent at the end of last year, the report said.

Tesoro agreed to buy the refinery and 70 service stations in Northern California. The refinery has capacity to handle 168,000 barrels of oil per day. Tesoro and Valero, both based in San Antonio, expected the deal to close this month. It has the approved of the Federal Trade Commission, and the companies are waiting for approval from the California attorney general's office.

Chief executive William Greehey said in a statement that Valero was "as surprised as anyone by the comments" from Smith. Greehey said that Tesoro would have to pay a $53-million breakup fee if the sale isn't completed. "We have always been assured that the sale of the Golden Eagle refinery would close as soon as Tesoro concluded its negotiations with the California attorney general's office," he said.