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Why Tesoro Logistics Raised Capital in 2Q16

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TLLP’s year-to-date returns

Tesoro Logistics (TLLP) has generated a total return of just ~1% since the beginning of 2016. By comparison, midstream energy peers PBF Logistics (PBFX), Delek Logistics Partners (DKL), and Phillips 66 Partners (PSXP) have generated total returns of 7.6%, -25.1%, and -11.9%, respectively, during the same period.

The Alerian MLP ETF (AMLP), which holds the top infrastructure MLPs, has generated a total return of 11.5% since the beginning of 2016.

The above graph compares the YTD (year-to-date) returns of TLLP with those of PBFX, DKL, PSXP, and AMLP. The MLP subsidiaries of refiners that mostly outperformed the MLP sector in 2015 have underperformed in 2016 so far.

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Debt and equity issuances

In May 2016, Tesoro Logistics issued $700 million of senior notes. It intends to use proceeds from the issue to repay amounts outstanding under its dropdown credit facility and revolving credit facility.

In June 2016, TLLP announced a public offering of 5.5 million common units. The underwriter of the offering exercised in full its option to purchase an additional 825,000 common units. TLLP intends to use the proceeds from the offering for purposes that “may include future acquisitions, capital expenditures, and additions to working capital.”

On July 1, 2016, TLLP announced the acquisition of storage and terminaling assets from Tesoro Corporation (TSO) for $444 million. Tesoro Logistics was formed in 2010 by Tesoro Corporation. Tesoro Logistics transports and stores crude oil, refined products, and natural gas. It’s also involved in natural gas gathering and fractionation.

We’ll discuss the dropdown from Tesoro in the next part of the series.

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