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Tesoro Finds Growth in Low Commodity Price Market

San Antonio-based Tesoro Logistics LP (TLLP) and its refining parent, Tesoro Corp., see the prospects for continuing growth in midstream endeavors and refining in 2016, following 4Q2015 results that showed solid profits amid continuing low oil and natural gas commodity prices.

On separate conference calls, Tesoro/TLLP CEO Greg Goff told analysts that the companies delivered solid results despite what he called "a challenging market environment." Goff dubbed last year a "transformative year" for both companies, which managed to grow in almost every segment of the business.

Goff said volumes were up in crude gathering (37%), natural gas gathering (5%), crude oil (8%), natural gas liquids (NGL) (20%), terminaling (4%) and transportation pipeline volumes (3%) year-over-year.

Tesoro reported profits of $54 million (45 cents/share) in the 4Q2015, compared to $145 million ($1.13) in the same period in 2014. TLLP had net earnings of $66 million (49 cents), compared to a loss of $13 million for the same period in 2014 (minus 34 cents).

TLLP's acquisition of natural gas operations in the Rockies from QEP Midstream Partners (see Shale DailyOct. 20, 2014) contributed to this year's positive results, and a recent acquisition of Great Northern Midstream Partners (see Shale DailyJan. 11) is expected to do the same this year, Goff said.

Gathering system results for both oil and gas continued to show growth. For crude oil, TLLP averaged 205,000 b/d last year, according to President Phillip Anderson. "Volumes increased about 3% sequentially and approximately 37% year-over-year," primarily due to gathering system additions, he said.

Despite the challenging commodity price environment, Anderson said natural gas gathering volumes increased nearly 5% last year, and NGL volumes were up even more. "This reflects improvements in  producer efficiencies in the basins where we operate." For the first quarter this year, however, Anderson said TLLP expects volumes to be "flat to slightly down" due mostly to winter seasonal constraints.

In response to a question about this week's $4.4 billion Dominion acquisition of Questar Corp. (see Daily GPIFeb. 1), Anderson said that Tesoro and TLLP have been watching the development of the transaction very closely. "[Salt Lake City-based] Questar is a very important customer to us in the Rockies, and all of our business now with them is under life of reserves-type contracts, so we remain comfortable that we will continue to do business with them."

Anderson said that strengthening Questar overall through the Dominion buy should be a "good thing long term" for TLLP, which has "strengthened its relationship" with Questar in recent weeks and months.

Goff and Anderson both emphasized that Tesoro intends to continue to look for merger/acquisition (M&A) opportunities in today's low-price environment or when prices start increasing. The focus is particularly on the Midcontinent, they said.

"Our focus has always been on identifying opportunities that we think are a strong fit with our business," Goff said on the Tesoro conference call. "We're also very aware of the market environment, and we do our own projections on where we see price spreads going. Our approach is unchanged, and we just have to see what happens going forward."

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