Tesoro Corp. recently agreed to sell its storage and terminalling assets in Alaska to its MLP, Tesoro Logistics LP (TLLP), for $444 million. The purchase price consists of $400 million in cash and $44 million in units.
The Alaska storage and terminalling assets include:
- Storage: Crude oil, feedstock and refined product storage tanks with a combined capacity of about 3.5 million barrels (MMbbl) in Kenai, Alaska, with connectivity with TLLP’s Tesoro Alaska Pipeline and Nikiski Products Terminal and Tesoro’s Kenai Refinery.
- Terminals: Refined product terminals in Anchorage and Fairbanks with a combined storage capacity of more than 600,000 bbl, expected throughput of 10,400 bbl/d and rail loading of 7,000 bbl/d.
The transaction is expected to close in two stages. The storage portion of the acquisition closed on July 1, while the acquisition of the Anchorage and Fairbanks terminals is expected to close later in the third quarter once the consent decree with the State of Alaska becomes effective. This agreement is related to Tesoro’s acquisition of the Flint Hills Resources assets, which closed on June 20.
In consideration for the first closing (storage assets), Tesoro received $239 million of cash and $27 million of common and general partner units of TLLP. The cash consideration was borrowed on TLLP’s revolving credit facility, according to Tesoro.
The equity consideration was based on the average daily closing price of TLLP’s common units for the 10 trading days prior to closing, or $48.06 per unit, with 390,282 units in the form of common units and 162,375 units in the form of general partner units.
In consideration for the second closing (terminal assets), Tesoro will receive $160 million of cash and $18 million of common and general partner units of TLLP. The cash consideration is expected to be borrowed on TLLP’s revolving credit facility and the equity consideration will be based on the average daily closing price of TLLP’s common units for the 10 trading days prior to closing.
Meanwhile, equity analysts are bullish on Tesoro’s dropdown of the assets into its midstream MLP.
“We think this is a slight positive for Tesoro, as the multiple is decent and Tesoro is receiving 90% cash in the deal, which is more than we had expected,” Brad Heffern, analyst for RBC Capital Markets LLC, observed in a note to clients.
“We believe that Tesoro has the best West Coast refining position in our universe, and has recently benefited from a tight West Coast gasoline market. However, we think Tesoro’s MLP strategy may struggle in the current commodity environment, and its strategy for its marketing business relies on significant acquisitions using an unknown source of capital. We could become more interested in Tesoro when the trajectory for West Coast cracks becomes more clear,” Heffern noted.
Bryan Sims can be reached at bsims@hartenergy.com and @bsimshart
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