April 4, 2011 [OPIS] - Tesoro gave further clarity on its plans to spin off about half of its logistics assets -- across crude gathering, storage, pipelines and terminals -- via a 2011 Initial Public Offering (IPO) that should raise about $225 million.
The spin-off was created last December, and Tesoro said today that it will sell 12.5 million shares of stock in the new company — Tesoro Logistics LP. The stock will trade on the New York Stock Exchange under the symbol TLLP and the assumed price is around $20 per share.
Investors will have to exercise some faith in the new company’s business plan since for now, almost all of its revenue comes from the parent, Tesoro. The spinoff will consist of a crude oil gathering system in the Bakken Shale/Williston Basin area of North Dakota and Montana; various short-haul pipelines; a large crude oil storage facility at Tesoro’s Salt Lake City refinery; and eight western refined products terminals.
The company’s filing with the Securities and Exchange Commission discloses that the eight products terminals account for 229,000 bbl of fuel. The MLP will get terminals in Los Angeles and Stockton, Calif.; Anchorage and Kenai, Alaska; Mandan, N.D.; Boise and Burley, Idaho; and Salt Lake City. Part of the new company’s business plan includes increasing throughputs at these facilities, whether through maximizing Tesoro’s usage or seeking additional third party customers.
Some organic growth is planned for a few terminals. There is an ongoing project that will add 8,000 bbl of capacity at Stockton, Calif., and the company will install ethanol receiving and blending capability at Salt Lake City and Boise, Idaho. There are also plans to provide transmix unloading services at the Los Angeles terminal. Another phase of growth could come if Tesoro decides to sell other properties to the MLP. TLLP will have a right of first refusal on a rack near the Golden Eagle refinery in the Bay area; and various marine properties at that refinery as well. A similar right comes with pipelines and tankage associated with the Kenai refinery and Anchorage airport as well as properties in Los Angeles and Long Beach. Tesoro has for now held on to its Anacortes rack. When all totaled, the logistics assets that were not spun off to TLLC have a book value of $240 million, compared with the $190 million book value for the entity that will be spun.
Additional plans are to find strategic acquisitions in the western half of the U.S. TLLC wants to focus on stable fee-based businesses. TLLC will also consider the construction of a rail facility near its Mandan, N.D., refinery. Under Tesoro’s aegis, the refinery will be expanded from 58,000 b/d to 68,000 b/d by the second quarter of 2012, but the gathering system might ultimately have more crude than the North Dakota plant needs. Crude could be loaded and sent south to other refineries under one scenario.
After the initial public offering, Tesoro will have a limited partnership interest of just under 58%, as well as the 2% “general partner” interest. The specific date for the IPO has yet to be disclosed, but the consortium of banks leading the underwriting effort includes Citi, Wells Fargo, Bank of America, Credit Suisse and others.
