Coming off the closing last month of a $2.5 billion merger with Denver-based QEP Midstream Partners LP, Tesoro Logistics LP (TLLP) is still looking for more acquisitions in the West, expanding in both the Pinedale and Uinta plays, and waiting for producers to seek more gas-gathering infrastructure in the Bakken.
These were the highlights of CEO Greg Goff's comments during a 2Q2015 conference call in which TLLP reported net income of $72 million (60 cents/share), compared with $31 million (45 cents) for the same period in 2014.
Noting that for the first half of this year TLLP's newly acquired gas-gathering business contributed $141 of EBITDA and it is on target to provide $275 million for the full year, Goff said based on the combined value of the QEP Rockies acquisition and the $400 million cost of the merger, TLLP expects a multiple of 10 times EBITDA for the first full calendar year of combined operations. "This is one year ahead of our original goal," he said.
In response to analyst questions, President Phil Anderson emphasized the organic growth that TLLP is pursuing in the Rockies focused on the Pinedale Anticline and the Uinta Basin in Utah with expanded compression in Pinedale allowing more natural gas (40-65 MMcf/d) to be extracted on a per-well basis and servicing the increased drilling in the key area there.
In the Uinta Basin, the project is called Walker Hallow will support deep gas drilling in which QEP has a proven track record; it's a $50-75 million project, Anderson said. Both are projects from which TLLP expects returns in the 15-25% range and with 2016 completion targets, he said.
In response to questions on future mergers/acquisitions (M&A), Goff said TLLP is looking for more as long as they "complement the Tesoro business and provide the opportunity to grow value." He reiterated that the strong relationship between Tesoro Corp. and TLLP will continue as the logistics company seeks to be more integrated among oil, natural gas and natural gas liquids infrastructure.
Goff said TLLP's intended expansion would be within its existing strategic western areas with no intention of moving in the Gulf Coast region.
In the Bakken, where TLLP previously talked of possibly leveraging QEP assets to expanding gas-gathering infrastructure, Goff said he's interested in pursuing the gas side of gathering in North Dakota, but right now he doesn't think producers have an appetite for the expansions.
Noting it would complement TLLP's existing crude oil and water businesses in the Bakken, Goff said that given the current commodity price challenge, producers "have a very low incentive to commit to incremental gas gathering around this market." He said TLLP has "a lot of interest and very active discussions, but as we look at projects like this, we would need pretty solid commitments behind it, and producers just are not in that space right now."