Holly Corp. said it has entered a definitive agreement with a subsidiary of Sinclair Oil Corp. to purchase Sinclair’s 75,000 bpd refinery in Tulsa, Oklahoma, and 2.3 million bbl of storage for $128.5 million.

Under terms of the agreement, Holly will also purchase the refinery’s inventory of approximately 500,000 bbl at the time of closing at market value. Holly plans to integrate the facility with its existing 85,000 bpd Tulsa refinery.

“This acquisition represents a unique synergistic opportunity to form the highest complexity factor refining facility in the Midcontinent while substantially reducing previously planned capital expenditures at our existing Tulsa refinery,” said Holly Corp. Chairman and CEO Matt Clifton.

The transaction, which has already completed the required Federal Trade Commission review process, is subject to customer closing conditions as well as certain regulatory conditions.

At closing, Sinclair and Holly will enter into a long-term agreement under which Holly will provide up to 50,000 bpd of gasoline and diesel fuel to Sinclair to supply the company’s extensive branded and unbranded marketing network throughout the Midwest.

The purchase price is comprised of $54.5 million in cash and $74 million in Holly common stock. Holly anticipates funding the cash portion of the transaction and the related inventory purchase with cash on hand, utilization of its existing credit facility, and potentially from proceeds from a possible private sale of debt securities.

Also, Holly Energy Partners, L.P., a Holly affiliated midstream master limited partnership, announced that, pursuant to the same definitive agreement, it has agreed to purchase approximately 1.4 million bbl of additional storage at Sinclair’s Tulsa facility, as well as light products, asphalt and propane loading racks and a product delivery pipeline. In conjunction with the HEP transaction, it is anticipated that subsidiaries of Holly and HEP will enter into a long-term contract for HEP to provide Holly with certain storage, loading and delivery services associated with the HEP acquired assets for certain agreed upon fees.

During the last five years, Sinclair has invested over $300 million in upgrades and other projects at its Tulsa refinery to meet current Environmental Protection Agency low sulfur gasoline standards and to produce 100 percent ultra-low sulfur diesel. In addition, Sinclair is currently in the process of completing certain required emission reduction projects at the facility. Holly estimates that it will be required to make an additional investment of approximately $16 million for these projects.

According to the release, Holly intends to utilize existing third party pipelines and, if needed, build new pipelines to link the Sinclair refinery and Holly’s Tulsa refinery which are approximately two miles apart, to form a single, large, highly-complex integrated facility. The integration will allow Holly to upgrade the gas oil produced at its existing Tulsa refinery into higher-margin gasoline and diesel by processing the gas oil through the Sinclair refinery’s fluid catalytic cracking unit.

Holly will also desulfurize a portion of the diesel product at its Tulsa refinery by processing it through the existing diesel desulfurizer at the Sinclair facility to produce ULSD. Initially, Holly anticipates that approximately half of the diesel produced at the combined facility will be converted to ULSD with the remainder continuing to be sold as high sulfur diesel for railway use.

Holly also plans to expend approximately $10 million over the next two years to expand the Sinclair refinery’s diesel desulfurization capacity so that all diesel produced at the integrated complex can be converted into ULSD. In addition, Holly expects to spend approximately $30 million on a related project to add sulfur recovery capacity and to add to the flare gas recovery system at its Tulsa refinery.

“By operating the fully integrated complex at a combined crude oil capacity of approximately 125,000 BPD, rather than its combined name-plated crude capacity of 160,000 BPD, we will save approximately $110 million of previously required regulatory capital costs versus our initial $150 million estimate,” continued Clifton. “We also expect the integrated facility will reduce expected capital expenditures for forthcoming reduced benzene in gasoline requirements from approximately $30 million for the Holly facility alone to approximately $15 million for the integrated complex.”

Clifton said the acquisition increases Holly’s overall crude capacity by 40,000 bpd while eliminating approximately $125 million of required near-term capital expenditures.

“The transaction will also preserve Holly’s high-value specialty products production capabilities and allow for the upgrade of low value gas oil currently produced at Holly’s Tulsa facility into higher value transportation fuels without the substantial capital expenditure that would otherwise be required,” said Clifton.

According to a separate release from Sinclair, the transaction is expected to close before year end.