The move should help Tesoro monetize some of its logistics assets and sets up a couple of pathways to future growth.  

The company has yet to reveal how many shares it will sell, and at what price, but the new affiliate will trade under the symbol “TLLP” when an initial public offering (IPO) is held sometime this year. Citi will be the lead bank on the IPO.  

The cornerstones of the logistics company will be a crude gathering system in the Bakken Shale/Williston Basin area as well as eight refined products terminals and five short-haul pipelines in Utah. Parent company Tesoro will be the principal customer for all of the assets, although the prospectus notes that the MLP might try to add third-party business for some of the properties.   

There is no hint of a business plan where the logistics company might market or trade product, similar to the way Sun Logistics or Buckeye and Plains All American have focused. All of the profits appear to be fee-based, with little commodities risk.  

The High Plains system, which includes the gathering operations and storage in the Bakken Shale/Williston Basin may get the most attention. The region has seen explosive growth but has little infrastructure. Tesoro moves about 23,000 b/d of crude oil via truck and has the capacity to deliver up to 70,000 b/d to the refinery it operates in Mandan, N.D. The initial agreement between parent Tesoro and the logistics affiliate will see the MLP obligated to deliver about 49,000 b/d of Bakken crude.  

Eight refined products terminals with 229,000 bbl of total storage will also be spun off in the logistics IPO. They are located in Los Angeles and Martinez, Calif.; Salt Lake City, Utah; Kenai, Alaska; Anacortes, Wash.; and Mandan, N.D. There is also 878,000 b/d of crude storage as well as short-haul pipelines that serve the Salt Lake City refinery. The prospectus suggests that the terminalling, transportation and storage assets that are targeted in the IPO are in regions that will outpace growth in other parts of the U.S. in the next 25 years.  

There is a special agreement for any Tesoro terminals, storage or pipelines that are not part of the initial IPO spin-off. Tesoro has granted the subsidiary the “right of first offer” on these non-included assets, and it estimates their aggregate book value at about $240 million, compared to the $190 million for properties included in the spin-off. Some of these additional properties are owned outright by Tesoro, but other terminals like Stockton, Calif.; Vancouver, Wash.; and Anchorage, Alaska, are on leased property with expirations occurring from 2011-2016.  

If successful, there could be some nervousness surrounding the subsidiary’s performance in the early going. Substantially all of the revenue is dependent on Tesoro Refining and Marketing’s ability to maintain operations or grow. A shutdown, such as the extended downtime that occurred after the Anacortes fire last summer, could severely impact the logistics affiliate. There is a 10-year master terminalling services agreement for fees that the affiliate will receive from Tesoro, and similar agreements on crude storage and transportation.  

The new company purports to have a third-party acquisition strategy, where it might pick up terminals that fit with Tesoro’s refining and marketing operations. Any purchases will be limited to the western half of the United States, however.   

Organic growth is also planned. Tesoro said, for example, that it intends to add ethanol blending capabilities to Salt Lake City, Utah, as well as to Boise and Burley, Idaho. It also will consider a project whereby it might provide transmix unloading and jet fuel loading services at the Los Angeles terminal. Those services are currently being provided by third parties.