Tesoro Logistics overview: A master limited partnership analysis
A must-know investor's guide to Tesoro Logistics and more (Part 1 of 4)
Tesoro Logistics
Tesoro Logistics LP (TLLP), headquartered in Texas, is a master limited partnership (or MLP) which was formed by Tesoro Corporation (TSO) in 2011. TLLP owns, operates, develops, and acquires crude oil and refined products logistics assets in the U.S. Many of the assets owned by TLLP have been dropped down by Tesoro Corporation and are integral to the success of Tesoro Corporation’s refining and marketing operations. Note that Tesoro Corporation was born out of a series of acquisitions, which include the British Petroleum (BP) acquisition of Carson Refinery. Other energy players operating in this space include Chesapeake Energy (CHK), Exxon Mobil (XOM), Chevron (CVX), and ConocoPhillips (COP). All these companies can be invested into via the Energy Select Sector SPDR Fund (XLE).
Organizational structure
Tesoro Logistics GP, LLC operates as a general partner (or GP) of the company and along with a 2% GP interest, has ~6% limited partner (LP) interest in TLLP. Tesoro Logistics GP is owned by the Tesoro Corporation which has 28% interest in the partnership. Public unitholders hold the remaining 64%.
TLLP has been growing rapidly from successive dropdowns and acquisitions, including the Los Angeles logistics assets, acquired for $650 million in late 2013 and Chevron’s Northwest Products System, acquired for $355 million in 2012.
Asset summary
Tesoro Logistics operates in two segments, Crude Oil Gathering and Terminalling and Transportation. The Crude Oil Gathering segment operates out of the Williston/Bakken area in North Dakota, Montana, which gathers and transports crude oil from various production locations. The Terminalling and Transportation segment owns and operates the northwest products pipeline and a jet fuel pipeline, along with 20 crude oil and refined products terminals and storage facilities in the Western and Midwestern U.S., as well as four marine terminals in California. TLLP also owns a rail-car unloading facility in Washington, a petroleum coke handling, and storage facility in Los Angeles; and other pipelines, which transport products and crude oil from refineries to nearby facilities in Salt Lake City and Los Angeles.
Financial summary
TLLP has a market cap of ~$3 billion and an enterprise value of ~$4.5 billion (as of April 17). The company’s adjusted EBITDA for fiscal year 2013 was $129 million, up 66% compared to fiscal year 2012. The key drivers for the EBITDA growth in 2013 over 2012 were dropdowns from Tesoro, which included Long Beach Marine Terminal and Los Angeles short-haul pipelines. TLLP is currently trading at an EV–to–2014E EBITDA of ~15x and believes that it will continue to benefit from the synergies created by the acquisition it has made in the 2011-2013 time frame.
Distribution
Distributable cash flow (or DCF) for fiscal year 2013 was $83 million—up 26% over fiscal year 2012, resulting in a full-year coverage ratio of 1.1x.
For the fourth quarter of 2013, TLLP increased its distribution to $0.565 per limited partner unit, which represents a growth of 4% over the previous quarter and 20% over the prior year. The amount distributed for fiscal year 2013 was $2.11 compared to $1.71 in 2012, a 23% increase. Tesoro Logistics provides a distribution yield of 4.3% currently.
Read the following parts of this series to learn about TLLP’s assets in greater detail.
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