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Tesoro Stock Surges On Deal To Buy Shell Refinery For $1. 63 Billion

Tesoro Petroleum's stock rose sharply after the company agreed to acquire Royal Dutch Shell's Los Angeles-area refinery for $1.63 billion.

The acquisition is aimed at improving Tesoro's position as the leading West Coast refiner,

Anglo-Dutch oil company Royal Dutch Shell said the deal includes the 98,000 barrel-a-day refinery, which is located in Wilmington, Calif.; a products terminal; and 250 gasoline stations. Additionally, Tesoro has agreed to buy 140 California gasoline stations from USA Petroleum.

The Shell deal, which was first reported by CNBC's Maria Bartiromo, is expected to close in the second quarter of this year.

The acquisition gives the San Antonio-based Tesoro a position in Los Angeles, the only West Coast market where it was not previously represented.

"The refinery fits perfectly with our system, and we expect to quickly integrate the facility into our network," said Tesoro Chairman and Chief Executive Bruce Smith, in a statement.

Meanwhile, the sale will leave Shell with only two wholly-owned U.S. refineries - one in Martinez, Calif., and another in Anacortes, Wash. - on the West Coast. The company jointly owns four other refineries on the U.S. Gulf Coast.

Tesoro Profits More Than Double

Earlier, Tesoro reported fourth-quarter profit more than doubled as stronger refining margins offset maintenance costs at its Washington state refinery.

Net earnings climbed to $158 million, or $2.28 a share, from $69 million, or 97 cents a share, in the year-ago quarter.

Analysts polled by Thomson Financial had expected the company to post earnings of $1.88.

The company said its gross refining margin rose 16%, helped by heavy industry maintenance on the West Coast during the quarter, the company said.

Revenue during the quarter fell to $4.02 billion from $4.36 billion.

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