Why Tesoro’s Los Angeles logistics acquisition is driving growth

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The Los Angeles logistics acquisition

In December 2013, Tesoro Logistics closed its acquisition of Los Angeles logistics assets owned by Tesoro Corp.’s (TSO) subsidiary, Tesoro Refining and Marketing Company LLC.

As per the report, the Los Angeles logistics assets include:

  • Two marine terminals with expected throughput of 285,000 barrels per day, which includes a marine terminal capable of handling a 2 million-barrel-capacity very large crude carrier
  • Over 100 miles of active crude oil and refined products pipeline system connecting Tesoro’s Los Angeles refining complex with the marine terminal facilities to be acquired and TLLP’s Los Angeles area refined products terminal and storage facilities, with initial expected throughput of 550,000 barrels per day
  • Dedicated crude oil and refined products storage terminals with capacity of 2 million barrels
  • A petroleum coke handling and storage facility with an expected throughput of 2,600 metric tonnes per day, a refined products terminal, and a shipping container storage lot
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The acquisition was priced at $650 million. Of this, $585 was paid in cash, and the rest was supported by TLLP equity valued at approximately $65 million. The equity consideration was based on the average daily closing price of TLLP’s common units for the ten trading days prior to closing. The cash component was financed by net borrowings (of approximately $250 million) undertaken by TLLP under its revolving credit facility as well as the proceeds from an equity offering (made in November 2013) of TLLP’s common units.

LA acquisition

The acquisition was immediately accretive to distribution growth. On a quarter-over-quarter basis, distributions grew 4%. Management also noted that the successful acquisition completed in the final quarter of 2013 “capped a year of over $1.6 billion of transformational growth for TLLP.”

Tesoro Logistics expects that with the integration of Los Angeles Logistics assets with TLLP, the company will derive benefits throughout 2014 and thereafter as well. As per management’s expectations, Los Angeles logistics assets are stated to contribute an estimated EBITDA of $60 million to $65 million in 2014 and subsequently around $65 million to $75 million annually. Note that TLLP’s general partner is Tesoro Corporation (TSO), which owns significant LP interests in TLLP. TLLP is a part of the Alerian MLP ETF (AMLP) and TSO is part of the Energy Select Sector SPDR ETF (XLE) and Vanguard Energy ETF (VDE).

Read on to the following part of this series to find out about other trends TLLP has been deriving positive synergies from.

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