Tesoro Logistics LP IPO Preview

Includes: TLLP, TSO
by: IPOdesktop

Tesoro Logistics LP (NYSE:TLLP) is scheduling a $250 million IPO with a market capitalization of $610 million at a price range mid-point of $20 for Wednesday April 20, 2011. Full IPO Calendar lists 4 other IPOs for this week.

SUMMARY -- Logistics assets LP spin-off from Tesoro (NYSE:TSO).

VALUATION -- TLLP plans to payout 6.8% at the price range mid-point of $20. Compares favorably with other similar payouts. Consider the following: PAA Nat Gas Stor PNG pays 5.9%; DCP Midstream Prtnrs (NYSE:DPM) pays 6.0%; Copano Energy LLC (NASDAQ:CPNO) pays 6.5%; Niska Gas Storage (NYSE:NKA) pays 6.5%.

This is a logistics assets spin-off from Tesoro (TSO). Initial assets consist of a crude oil gathering system in the Bakken Shale/Williston Basin area of North Dakota and Montana, eight refined products terminals in the midwestern and western United States and a crude oil and refined products storage facility and five related short-haul pipelines in Utah.

Tesoro Corporation (TSO), market capitalization of $3.76 billion. TSO stock increased 83% in the last six months. As of December 31, 2008, TSO owned and operated seven petroleum refineries located in the western and mid-continental United States with a combined crude oil capacity of 665 thousand barrels per day. SO’s retail segment sells gasoline and diesel fuel through company-operated retail stations and third-party branded distributors in the western and mid-continental United States

Minimum quarterly distribution of $0.3375 per unit for each complete quarter, or $1.35 per unit on an annualized basis.

Unaudited Pro Forma Available Cash for the Year Ended December 31, 2010; $46 million, enough to pay the minimum quarterly distribution of $0.3375 per unit per quarter ($1.35 per unit on an annualized basis) on all common units and subordinated units and the corresponding distributions on the general partner’s 2.0% interest. Expects to generate cash for the 12 months ended March 2012 to make cover a similar distribution then. This information can be found in the S-1, pages 52 & 53.

POST-IPO -- Tesoro will continue to own and operate substantial crude oil and refined products logistics assets and will retain a 57.8% limited partner interest in TLLP, a 2.0% general partner interest and all of incentive distribution rights

Crude Oil Gathering -- As a result of TLLP’s contractual relationship with Tesoro under the High Plains pipeline transportation services agreement and connection to the Mandan refinery, TLLP believes that its High Plains system will not face significant competition from other pipelines for Tesoro’s own crude oil supply requirements in the Bakken Shale/Williston Basin area.

However, TLLP’s High Plains system will face competition from a number of major oil companies and smaller entities for the gathering and transportation of crude oil production in the Bakken Shale/Williston Basin. May also face competition for opportunities to build gathering lines from producers or other pipeline companies.

Existing pipelines owned and operated by Enbridge, Plains All American Pipeline, and the True Oil Companies (owner of the Bridger, Belle Fourche, and Little Missouri pipelines) are available for producers who want to ship crude oil produced in the Bakken Shale/Williston Basin area.

Additionally, EOG Resources owns a rail unit train loading facility in the area with multiple crude oil loading points. Encana (NYSE:ECA), Transcanada (NYSE:TRP), Plains All American Pipeline (NYSE:PAA), Enbridge (NYSE:ENB) and the True Oil Companies also continue to (or have announced their intent to) expand their pipeline systems in the area.

For example, Enbridge completed the latest phase of its most recent North Dakota system expansion in early 2010 and has announced further phases of its Bakken expansion program to be completed in stages between 2011 and 2013, the True Oil Companies are building new pipelines to connect to existing trunk lines, and Plains All American Pipeline has announced plans to construct a new pipeline from Trenton, North Dakota connecting into its existing Canadian Wascana pipeline system. All of these projects will provide transportation options for crude oil producers in the Bakken Shale/Williston Basin area.

Terminalling, Transportation and Storage -- TLLP believes it will face competition from third-party refined products terminals for barrels of refined products in excess of Tesoro’s minimum volume commitments under TLLP’s commercial agreements with Tesoro.

-- $225 million

  • $220.0 million will be distributed to Tesoro, in part to reimburse Tesoro for certain capital expenditures it incurred with respect to assets contributed to TLLP
  • $2.0 million for debt issuance costs; and
  • 3.0 million for working capital purposes.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.