With the added capacity, Tesoro will become the biggest oil refiner operating on the U.S. West Coast, Reuters noted.
Shares of Tesoro jumped about 9% on the news in Monday morning trading, while BP shares slipped fractionally.
In addition to refinery, which processes 266,000 barrels a day, Tesoro will also acquire BP’s existing oil inventories for an additional $1.3 billion.
Analysts cited by Reuters noted that increasing oil industry regulation in California has driven some refiners away from the state. That exodus likely includes BP, which will continue to operate a refinery in the state of Washington.
With a dwindling number of players, California’s oil market is becoming more profitable for companies willing to weather the regulatory burden. California’s grade restrictions on oil mean that most South American and Asia refineries cannot supply fuel to the state.
Temporary shutdowns in local refineries have sent gasoline prices soaring in the state twice this year.
However, lower demand for fuel can strangle profits thanks to the high cost of doing business in the state. During its fiscal fourth quarter, Tesoro posted a loss as refining margins in California tumbled.