TLLP-Chevron Deal Price Slashed


Tesoro Logistics LP (TLLP), an affiliate of independent refiner Tesoro Corporation (TSO), declared that it has lowered its acquisition price for buying the Northwest Products System of Chevron Pipe Line Co from the originally planned $400 million to $355 million.

Tesoro Logistics revealed that the Mar 18 fuel spill incident involving the system – at the site close to Willard, Utah – is the primary reason behind the price reduction. Chevron Pipe Line Co, a subsidiary of the U.S. energy behemoth – Chevron Corporation (CVX) – will clean the affected area and is expected to hold all the liabilities for two years.

Tesoro Logistics is planning to spend roughly $15 to $25 million to organize a thorough examination program in order to heighten the integrity level of the pipeline system. Tesoro Logistics added that it will use the funds from the $392 million equity issued on Jan 14, 2013, for acquiring the asset.  

For the first 12 months, Tesoro Logistics expects earnings before income, tax, depreciation and amortization (:EBITDA) from the property to be roughly in between $30 to $35 million. The asset comprises the Northwest product pipeline, which spreads over 760 miles and is now under the regulation of Federal Energy Regulatory Commission (:FERC). The carrier supplies refined products in southern Idaho and eastern Wash and is the primary and leading provider in these regions. The throughput volumes of the pipeline system were roughly 87,000 barrels per day during 2012.

The Northwest Products System also consists of jet fuel pipeline that spread over five miles and refined products terminals. The terminals are based in Idaho and Wash and can store roughly 1.3 million barrels of liquids.  

San Antonio, Texas-based Tesoro Logistics is a limited partnership, which purchases and possesses logistics properties of crude oil and refined products. The partnership also operates and develops these assets.

Tesoro Logistics currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

However, one oil and gas production pipeline Master Limited Partnership (MLP) that is expected to outperform the broader U.S. equity market over the next one to three months is Kinder Morgan Management LLC (KMR). The firm retains a Zacks Rank #2 (Buy).

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