* Marathon to purchase refinery for $598 million
* Inventory worth around $1.2 billion
* Marathon shares soar, analysts see deal priced cheaply
(Recasts throughout, adds quotes, details)
By Kristen Hays
HOUSTON, Oct 8 (Reuters) - Marathon Petroleum Corp is buying BP Plc's Texas City refinery, the site of a deadly industrial accident, in a $2.5 billion deal that will make it the No. 4 U.S. refiner with a bigger potential slice of lucrative exports.
Marathon's share price shot to a record high early on Monday after it announced the purchase of the 451,000 barrel-per-day (bpd) refinery, the fifth largest in the country, in a deal analysts said could give the independent refiner more leverage in the fuel export market.
"This is a unique opportunity to acquire world-scale refining assets at an attractive price," Marathon Chief Executive Gary Heminger told analysts on Monday.
The company will not incur any liability stemming from the 2005 explosion at the BP plant which killed 15 workers and injured 180 more. BP paid more than $3 billion to settle lawsuits, cover fines and upgrade the refinery in the years after the blast.
"Texas City has a rather complicated history and that alone has made the valuation of this deal lower than it would have been otherwise," said Pavel Molchanov, an analyst with Raymond James. "The multiple is cheap, that's why the shares of Marathon are up."
With the $700 million earn-out arrangement, the deal's valuation is $1,880 per barrel of refining capacity and $328 per barrel without it, Molchanov said. A more typical valuation in recent deals has been $2,000 per barrel, Molchanov said.
Shares in Marathon rose to $60.04 early Monday, a record high and a near 50 percent gain on levels when the stock first began trading in June 2011. Shares closed at 57.80, up by 5.3 percent.
In addition to the refinery, Marathon will acquire the plant's inventory, three intrastate natural gas liquids pipelines, four terminals and other assets. The deal is expected to close early next year, Heminger said.
For a factbox on Marathon's refining operations, click on .
The base purchase price is $598 million, plus inventories estimated at $1.2 billion, Marathon said. The agreement also contains a provision to pay up to $700 million more over six years, depending on the refinery's profitability.
Marathon already owns one refinery in Texas City, a smaller 80,000 bpd plant across a street from the BP refinery.
The smaller plant processes only light-sweet crude, while the big one can handle everything from light sweet to heavy sour. That gives Marathon more ability to process cheap crude produced in the inland United States and Canada as well as the Gulf of Mexico and imports, Heminger said.
With the addition of the second Texas City plant, Marathon would have a total of 1.64 million bpd of U.S. refining capacity, roughly 9.5 percent of the national total, concentrated in the Midwest and Gulf Coast.
Heminger said the deal would increase the company's ability to export refined products, a growing business for U.S. refiners that have the capacity to ship refined products abroad as domestic demand slows due to changing consumer habits and the struggling economy.
"Having another Gulf Coast refinery will allow us to optimize our supply into Florida and into export markets," he said, adding that it has access to multiple marine docks.
Last year the United States became a net exporter of refined products for the first time in 62 years, shipping out 439,000 bpd more fuel than it imported as domestic demand waned and refiners looked to foreign markets to bolster profits, according to U.S. government data.
So far this year, U.S. fuel exports have nearly doubled versus year-ago levels to about 2.85 million bpd, the U.S. Energy Information Administration said.
Marathon has already tapped into that burgeoning market, having increased product exports in to Latin America, South America and Europe from its 490,000 bpd refinery in Garyville, Louisiana.
BP hasn't exported products internationally from the Texas City plant, instead just sending fuels to the U.S. Northeast through the Colonial Pipeline. Marathon could change that with some investment in docks, storage tanks and pipelines.
John Auers, senior vice president with refinery consulting firm Turner, Mason & Co, said the U.S Gulf Coast refining hub will keep using the combination of cheap crude, low natural gas prices and waning U.S. demand to become an export machine for world products. He said Marathon's plans fit right into that.
"That's really the engine that's going to be driving the US Gulf Coast refining industry, is ability to export products to first Latin America and South America, and then even beyond potentially into Africa," Auers said.
BP faced thousands of claims in civil lawsuits in the aftermath of the deadly 2005 explosion, which occurred after years of deferring maintenance. All told the company paid $2.1 billion to settle those cases by the end of 2008.
BP also paid $185 million in fines from safety regulators and to resolve a federal criminal case stemming from the blast.
BP launched a $1 billion overhaul in late 2005 after Hurricane Rita damaged parts of the refinery.
Heminger said BP would maintain responsibility for any fines and penalties stemming from its ownership and operation of the refinery as well as any pending litigation and claims.
"We spent a tremendous amount of time in our due diligence around this asset," Heminger said.
BP made an effort to wrap up legal loose ends to make the plant more attractive to buyers, Auers said.
THE REFINERY AND WHAT ELSE?
Heminger has consistently said the company was interested in acquisitions that gain assets beyond just a refinery, such as pipelines, terminals and supply contracts with service stations that work together in an integrated system.
He said contracts with retail gas stations as well as the pipelines, terminals and other logistics assets were a "key part" of this transaction.
Marathon will acquire BP's access to the Colonial Pipeline, the nation's largest oil product pipeline; four product terminals in Florida, North Carolina and Tennessee; retail marketing contracts to supply about 1,200 branded sites in the southeastern United States; and a 1,040-megawatt cogeneration facility on the refinery site.
"Along with our logistics system we already have and with the new logistics and we're going to acquire here, this gives us the ability to move into these markets even more efficiently than we have today," Heminger said.
(Additional reporting by Steve James and Michael Erman in New York and Anna Driver in Houston; Editing by Dale Hudson, Leslie Adler, Maureen Bavdek, Chris Baltimore and Andrew Hay)