Subsidiaries of Tesoro Corp. (NYSE:TSO) and Tesoro Logistics LP (NYSE:TLLP) have executed an agreement for the sale of storage and terminalling assets in Alaska to TLLP for a total consideration of $444 million.
The Alaska storage and terminalling assets include:
- Storage: Crude oil, feedstock and refined product storage tanks with combined capacity of approximately 3.5 million barrels in Kenai, Alaska, with connectivity with TLLP's Tesoro Alaska Pipeline and Nikiski Products Terminal and Tesoro's Kenai Refinery
- Terminals: Refined product terminals in Anchorage and Fairbanks with combined storage capacity of over 600,000 barrels, expected throughput of 10,400 barrels per day and rail loading of 7,000 barrels per day
The transaction is expected to close in two stages. The storage portion of the acquisition closed July 1. The acquisition of the Anchorage and Fairbanks terminals is expected to close later in the third quarter once the Consent Decree with the State of Alaska becomes effective. This agreement is related to Tesoro's acquisition of the Flint Hills Resources assets, which closed on June 20, 2016.
The acquisition price of $444 million includes cash proceeds to Tesoro of $400 million and the issuance of common and general partner units to Tesoro, valued at approximately $44 million.
In consideration for the first closing (storage assets), Tesoro received $239 million of cash and $27 million of common and general partner units of TLLP. The cash consideration was borrowed on TLLP's revolving credit facility. The equity consideration was based on the average daily closing price of TLLP's common units for the 10 trading days prior to closing, or $48.06 per unit, with 390,282 units in the form of common units and 162,375 units in the form of general partner units.
In consideration for the second closing (terminal assets), Tesoro will receive $160 million of cash and $18 million of common and general partner units of TLLP. The cash consideration is expected to be borrowed on TLLP's revolving credit facility and the equity consideration will be based on the average daily closing price of TLLP's common units for the 10 trading days prior to closing.
Seaport Global Securities analysts said the deal included more debt and less cash than anticipated, but think the deal is attractive.
“While these assets promise to be immediately accretive, they were previously highlighted as part of TLLP's growth strategy. As such, we had these earnings contributions largely in our forecast. We continue to rate TLLP a Buy and are revising our price target to $56 (from $52 previously) to reflect 2017 estimates,” the analysts noted.