Midstream service provider Tesoro Logistics LP TLLP announced that it has decided to acquire crude oil, natural gas and produced water gathering systems, and two natural gas processing facilities for a total of $700 million. These facilities, along with the terminalling and storage assets acquired from a subsidiary of Tesoro Corporation (TSO) for a total consideration of $400 million, will strengthen the midstream operations of Tesoro Logistics.
About the Assets
The assets, including both the ones that are acquired and are yet be acquired, will be immediately accretive to Tesoro Logistics’ earnings.
The Northern California Terminalling and Storage assets, which were acquired for $400 million, include 5.8 million barrels of crude oil, feedstock, refined product storage capacity and marine terminal capable of handling up to 35,000 bpd of feedstock and refined product throughput. These midstream assets will contribute $28–$33 million to annual earnings and $45–$50 million to annual EBITDA.
On the other hand, the North Dakota Gathering and Processing assets , which will be acquired for $700 million, include over 650 miles of crude oil, natural gas, and produced water gathering pipelines; 170 million cubic feet (MMcf) per day of natural gas processing capacity; and 18,700 barrels per day of fractionation capacity. These assets are expected to contribute $79–$89 million to annual earnings and $100–$110 million to annual EBITDA.
Rationale behind the Acquisition
Demand for natural gas is on the rise due to its clean-burning nature, which allows it to significantly reduce environmental pollution. Note that the midstream business is expected to play a vital role in the transportation of natural gas produced from wells to end users.
Tesoro Logistics’ efforts to expand its footprint in the midstream business through inorganic route will help it to achieve its 2017 goal of $635 million of net earnings and $1 billion of annual EBITDA.
We expect to see of such more merger and acquisition deals in the midstream space as the bigger players continue to enjoy the economies of scale and share the benefits with customers.
A Recent Deal in This Space
Sunoco Logistics Partners L.P. SXL and Energy Transfer Partners, L.P. ETP entered into a definite merger agreement, under which Sunoco Logistics will acquire Energy Transfer Partners in a unit-for-unit transaction.
The deal is expected to strengthen the balance sheet of the combined organization by utilizing cash distribution savings to reduce debt and funding a portion of the growth capital expenditure programs of the two partnerships. The two companies have already invested more than $15 billion in the last few years to strengthen their individual operations and have further investments lined up for this purpose.
Tesoro Logistics currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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