IPO Preview: Western Refining Logistics, LP

| About: Western Refining (WNRL)

Based in El Paso, TX, Western Refining Logistics, LP (NYSE:WNRL) scheduled a $250 million IPO with a market capitalization of $916 milli0n at a price range mid-point of $20, for Thursday October 10, 2013.

Seven IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-1 filed October 2, 2013

Manager, Joint Managers: BofA Merrill L; Barclays; Goldman; Wells Fargo
Co Managers: Credit Suisse; Deutsche ; UBS ; Credit Agricole CIB; SunTrust Robinson, BofA Merrill; Barclays; Goldman; Wells Fargo


WNRL is a mid-stream and storage (terminals, tanks, pipelines) limited partnership formed by Western (NYSE:WNR), which has a market capitalization of $2.55 billion. WNR is focused on the Delaware Basin in the Permian Basin area of West Texas and southern New Mexico and in the Four Corners area in northwestern New Mexico.


The most comparable recent IPO is Phillips 66 Partners (NYSE:PSXP), formed by its parent Phillips 66 (NYSE:PSX), which has a market cap of $36 billion. PSXP's IPO initial price range mid-point was $20 and the projected yield was 4.25%.

PSXP IPO'd July 22, 2013 at $23, traded as high as $35.95 and recently traded at $29.67, to yield 2.86%

The yield gap between PSXP and its parent narrowed. It is likely the same thing will happen regarding WNRL and its parent WNR, see the comparison below.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Min yield

% offered

12 months ended 6/13

Cap (MM)





in IPO

Western Refining Logistics, LP







Western parent







COMPARE with parent


Price /

Price /




12 months ended 6/13







Phillips 66 Partners LP







Phillips 66









As discussed above, It is highly likely that post IPO the market will reduced the yield gap between WNRL and WNR, just as it did for PSX and PSXP. The rating on WNRL is buy on the IPO.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:


WNRL is a fee-based, growth oriented Delaware limited partnership recently formed by Western to own, operate, develop, and acquire terminals, storage tanks, pipelines, and other logistics assets. WNR has a market capitalization of $2.55 billion.

Initial assets consist of pipeline and gathering assets and terminalling, transportation, and storage assets in the Southwestern portion of the U.S., including approximately 300 miles of pipelines and approximately 7.9 million barrels of active storage capacity, as well as other assets.

Most of the assets are integral to the operations of Western's El Paso and Gallup Refineries and include the following:

Pipeline and Gathering Assets.
Pipeline and gathering assets consist of 300 miles of crude oil pipelines and gathering systems and 566,000 barrels of active crude oil storage located primarily in the Delaware Basin in the Permian Basin area of West Texas and southern New Mexico and in the Four Corners area in northwestern New Mexico. These assets serve as a key source of high quality, cost-advantaged crude oil for Western's El Paso and Gallup Refineries.

Terminalling, Transportation, and Storage Assets.
Terminalling, transportation, and storage assets consist of terminals and storage assets located on site at each of Western's El Paso and Gallup Refineries, and standalone refined products terminals located in Bloomfield and Albuquerque, New Mexico.

These assets include 6.9 million barrels of active shell storage capacity. These assets primarily receive, store, and distribute crude oil, feedstock, and refined products for Western's refineries.

WMRL also provides fee-based asphalt terminalling and processing services at an asphalt plant and terminal in El Paso and asphalt terminalling services at three stand-alone asphalt terminals located in Albuquerque, New Mexico and Phoenix and Tucson, Arizona, which have a combined storage capacity of 473,000 barrels.

How WNRL Generates Revenue

WNRL generates revenue primarily by charging fees and tariffs for transporting crude oil and refined and other products through terminals and pipelines and for providing storage at storage tanks and terminals.

Minimum distribution

WMRL plans a minimum quarterly distribution of $0.2875 per unit for each complete quarter, or $1.15 per unit on an annualized basis, which is an annual distribution rate of 4.6% at the price range mid-point of $20.

Growth plan

WMRL's intends to expand the business primarily by increasing utilization of existing systems, acquiring additional logistics assets from Western and third parties and executing organic growth projects.

The Permian Basin in general, and the Delaware Basin in particular, are experiencing significant crude oil production growth as a result of improved drilling and completion techniques.

This production growth provides the El Paso Refinery with a local supply of high quality, cost-advantaged crude oil. Western has stated that it intends to increase its access to this production and grow its logistics business generally, and has formed WMRL to be the primary growth vehicle for this business.

Western will grant WMRL a right of first offer on certain logistics assets that it will retain following the completion of this IPO, as well as on additional assets that Western may acquire or construct in WMRL's existing areas of operation in the future. Competition


As a result of WNRL's contractual relationship with Western under the commercial agreements and WNRL's direct connections to Western's refineries, WNRL believes that it will not face significant competition from other pipelines, terminals, and storage facilities for Western's crude oil or refined petroleum products transportation requirements to and from the refineries WMRL supports with respect to the services provided by WMRL's initial assets

Use of proceeds

WNRL expects to net $231 million from its IPO. Proceeds are allocated as follows:

Retain $50 million for general partnership purposes;

Ppay $1.8 million in estimated debt issuance costs related to the revolving credit facility; and

Distribute the balance Western in partial consideration of its contribution of assets in connection with the IPO.

Disclaimer: This WNRL IPO report is based on a reading and analysis of WNRL's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.