By Patrick Danner
San Antonio Express-News
San Antonio-based Tesoro Logistics LP said it has agreed to acquire QEP Resources Inc.’s natural gas business in Colorado, Utah and North Dakota for about $2.5 billion.
The deal, which is subject to regulatory approval, is expected to close by the end of the year.
Tesoro Logistics investors apparently didn’t like the news, sending its shares down $9.61, or 14.3 percent, Monday.
All of the roughly 250 employees in Denver-based QEP’s natural gas business are expected to join Tesoro Logistics. It projected the combined operations will produce $20 million in annual savings.
Tesoro Logistics will be expanding into the natural gas market with the acquisition. It has been focused on owning oil pipelines, storage facilities and terminals.
“We are utilizing our existing core competencies and gathering liquid and gas handling, processing and commercial to capture additional value from our logistics business,” CEO Greg Goff said on a conference call with analysts on Monday. The transaction was announced Sunday evening.
“Not only does this acquisition diversify our revenue into different basins, commodities and customers, it drives Tesoro Logistics towards our goal of growing a full-service customer-focused business,” Goff said. The QEP pipelines and processing facilities operate in the Rockies, the Unita Basin, primarily in Utah, and the Bakken Shale region of North Dakota.
Goff expects half of Tesoro Logistics revenue will come from third parties, up from 12 percent. The balance of its revenue has been generated by Tesoro Corp., which partially spun off Tesoro Logistics in 2011. Tesoro Logistics charges fees for gathering crude oil and for transporting and storing crude oil and refined products.
Tesoro Logistics will get more than 2,000 miles of pipeline as a result of the deal. The assets have more than 2.9 million cubic feet of natural gas throughput capacity and more than 54,000 barrels of crude oil throughput capacity per day.
Energy-related master limited partnerships generally distribute all of their profit to shareholders because of their limited partnership status, the Wall Street Journal previously reported.. The distributions usually aren’t taxable until investors sell the shares.
Goff said he expects Tesoro Corp.’s cash distribution from Tesoro Logistics will double to about $150 million next year.
Goff said Tesoro Logistics sees more than $400 million worth of projects over the next few years as a result of the acquisition.
Tesoro Logisitcs’ acquisition of QEP Resources’ natural gas gathering and procesing business, known as QEP Field Services LLC, includes QEP Field Services’ 58? percent partnership interest in QEP Midstream Partners LP. The purchase price includes about $230 million to refinance QEP Midstream’s debt.
Meanwhile, Goff said Tesoro Corp. has committed to invest $350 million in Tesoro Logistics common units, with an option to increase the investment to up to ?$500 million.
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