Based in El Paso Texas, Western Refining Logistics (WNRL) is expecting to have its IPO on 10/10/2013. The company is a fee-based, growth oriented Delaware limited partnership formed by Western (WNR) to own, develop, operate, and acquire terminals, storage tanks, pipelines, and various other logistical assets. The following will assess whether or not Western Refining Logistics is a position worth taking upon its IPO.
Western Refining's current assets consist of reportedly 300 miles of pipelines and approximately 7.9 million barrels of active storage capacity throughout the Southwestern portion of the United States. The majority of the company's assets are integral to the operations of Western's refineries located in El Paso, Texas, and near Gallup, New Mexico. The company intends to generate revenue primarily by charging fees and tariffs for transporting crude oil and other refined products through their pipelines and terminals; and additionally by providing for the storage of these resources in their terminals and storage tanks. All of the company's initial revenue will be derived from two, 10-year, fee-based contracts formed with Western. The company intends to use its contracts with Western as a means to generate stable and predictable cash flows. Western Refining Logistics intends to expand its business by increasing their utilization of existing systems and acquiring logistics assets from Western and third parties by executing "organic growth projects." The company also expects to have the right of first offer for any of Western's new drilling operations in the Permian and Delaware Basins.
As of 10/2/2013, the company currently does not have a website or employees and reported a net income of -$39,634,000 million and revenues of $2,438,000 in their most recent S-1/A filing on 10/3/2013. The company's total assets are $165,254,000 and its total liabilities are 2,963,000. That being said, the company expects to generate net proceeds of approximately $231 million from the IPO. Of the $231 million, the company intends to retain $50 million, pay $1.8 million to their revolving credit facility, and distribute the remaining balance of approximately $179 million back to Western. That being said, if this IPO performs as expected, Western will easily generate $15 million from essentially transferring some of their assets to a wholly owned subsidiary, which they in turn, decided to take public. In addition, any debt incurred by WNRL's operations will not be impacting Western, meaning that if Western decides to utilize WNRL to incur debts associated with the development and maintenance of pipelines and storage facilities, they won't be taking on any of the liabilities that are incurred until much later. This is especially noteworthy as Western Refining is currently undergoing an ambitious 4 phase project to expand its crude gathering in the Delaware Basin.
The company currently plans to raise around $250 million from offering 12,500,000 million shares at a price range between $19.00 and $21.00. If the company has a successful IPO, the company's market value will be around $912 million. With that in mind, the company is truly only an extension of Western, which is what should make investors cautious. By placing their assets in a wholly owned subsidiary and then taking it public, Western is in turn, having their assets (which they transferred over to Western Refining) paid for by investors. If Western felt that charging fees and tariffs for transferring crude oil was a profitable source of revenue for the company, then why would they form Western Refining Logistics? Additionally, the price range for the company is far too steep, especially after viewing their financials, which indicate that they are currently operating at a net loss of -$39,634,000 in 2013. Though perhaps this could be an excellent long-term growth investment, only time will tell, as it does not yet have the history nor evidence any intended growth beyond their current deals with Western. For investors interested in this position, they should probably consider initially investing in Western instead.