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Which Segment Drives Tesoro Logistics’ Earnings Growth?

Ruth King

Will Tesoro Logistics' Distribution Growth Continue?

(Continued from Prior Part)

TLLP’s Gathering segment

Tesoro Logistics’ (TLLP) Gathering segment primarily gathers crude oil and natural gas. The segment contributed 24% of TLLP’s EBITDA (earnings before interest, tax, depreciation, and amortization) in 4Q15. Tesoro Logistics’ Gathering segment’s EBITDA rose 50% compared to 4Q14. The growth in EBITDA was primarily driven by the acquisition of the Rockies natural gas business from QEP Resources (QEP).

Tesoro Logistics is expanding its crude oil gathering assets in the Bakken region, which is witnessing growing demand for transportation services. Tesoro’s (TSO) demand for Bakken crude oil for its mid-continent and West Coast refineries has also increased.

Tesoro Logistics’ Processing segment

The above graph shows the segmental contribution to Tesoro Logistics’ EBITDA over the last six quarters. Tesoro Logistics’ Processing segment contributed 24% of its 4Q15 EBITDA. TLLP introduced the Processing segment after its QEP Midstream and related acquisitions. The segment operates gas processing and fractionation facilities.

Tesoro Logistics’ acquisition of QEP Midstream Partners and QEP Field Services assets significantly increased its natural gas–related operations. TLLP forms ~0.6% of the Guggenheim Raymond James SB-1 Equity ETF (RYJ).

DCP Midstream Partners (DPM) and Tallgrass Energy Partners (TEP) are other MLPs operating fractionation facilities.

Terminalling and Transportation segment

Tesoro Logistics’ Terminalling and Transportation segment is its biggest segment. It contributed 53% of TLLP’s 4Q15 EBITDA. The segment operates crude oil and refined products pipelines, terminals, and storage facilities. The segment’s EBITDA rose 34% year-over-year in 4Q15.

The growth was primarily driven by contributions from new projects and the Los Angeles storage and pipeline assets dropdown from Tesoro (TSO) that was completed in November 2015.

Next, we’ll analyze Tesoro Logistics’ leverage situation.

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