Tesoro, Western Refining to merge

Tesoro Corp., San Antonio, has entered a definitive agreement valued at more than $6 billion to acquire fellow US independent refiner and marketer Western Refining Inc., which owns and operates three refineries in Texas, New Mexico, and Minnesota.

As part of the agreement, Tesoro will purchase Western at an implied current price of $37.30/share in a stock transaction that, based on Tesoro’s Nov. 16 closing stock price of $85.74/share, represents an equity value of $4.1 billion and an enterprise value of $6.4 billion, including Tesoro’s assumption of Western’s $1.7 billion net debt and the $605-million market value of its noncontrolling interest in Western Refining Logistics LP (WNRL), Tesoro and Western said in a joint news release.

Under the terms of the agreement, Western shareholders can choose either to receive 0.4350 of a share of Tesoro in exchange for each Western share (not subject to proration) or a cash sum of $37.30/share for each Western share (subject to proration in excess of about 10.8 million shares, or $404 million in the aggregate).

The transaction, which has been unanimously approved by both companies’ boards, is scheduled to close during first-half 2017, pending approval by shareholders as well as other customary closing conditions and regulatory approvals, Tesoro and Western said.

The proposed transaction follows recent consolidation moves by both independent refiners, including Tesoro’s acquisition of Dakota Prairie Refining LLC (DPR), the former MDU Resources-Calumet Specialty Products Partners LP joint venture that operated a 20,000-b/d diesel refinery near Dickinson, ND (OGJ Online, June 28, 2016), and Western’s takeover of Northern Tier Energy LP’s high-conversion refinery at St. Paul Park, Minn. (OGJ Online, June 24, 2016).

Merger details

In addition to the interest in WNRL, Tesoro will acquire the following Western assets as part of the transaction:

• A total of 254,000 b/sd (241,300 b/d) in refining combined refining capacity from Western’s three refineries, which include the 131,000-b/sd (124,450-b/cd) El Paso, Tex., refinery; the 25,000 b/sd (23,750 b/cd) refinery near Gallup, NM; and the 98,000-b/sd (93,100-b/cd) St. Paul Park refinery.

• Access to price-advantaged crude feedstock in Permian, San Juan, Bakken, and Western Canadian basins.

• Access to a fully integrated crude pipeline system that serves Western refineries and third parties, including a 17% interest in the 465,000-b/d Minnesota pipeline, the primary supply route for Western Canadian and North Dakota crude to the St. Paul Park refinery.

• Refined product storage and distribution pipelines to retail and wholesale customers.

• About 545 retail outlets in Arizona, Colorado, New Mexico, Texas, Minnesota, and Wisconsin.

Upon the completed merger, Tesoro will own ten refineries with a combined refining capacity of more than 1.1 million b/sd (1.05 million b/cd), as well as combined retail operations of more than 3,000 branded retail outlets operating under a variety of brands that, in addition to Tesoro-branded stations, will include ARCO, Shell, Exxon, Mobil, SuperAmerica, and Giant.

With regard to the combined logistics business, Tesoro said it already is eyeing opportunities to enhance the portfolio in high-growth Permian and other attractive crude basins, including investments in crude gathering and storage, as well as in natural gas gathering and processing.

Following conclusion of the transaction, Tesoro’s board likely will be expanded to admit Paul Foster and Jeff Stevens—Western’s current executive chairman and chief executive officer, respectively—as directors, Tesoro said.

Tesoro’s Gregory J. Goff will remain chairman, president, and chief executive officer of the combined company.

Contact Robert Brelsford at rbrelsford@ogjonline.com.

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