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Andeavor Logistics to Acquire Pipeline Operator for $1.5B

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Pipeline operator, Andeavor Logistics LP (ANDX - Free Report) announced recently that it will acquire rival Western Refining Logistics LP , including the latter’s $310 million net debt, to extend its hold in the prolific Permian Basin, TX.

Lately, the Permian Basin has drawn many oil producers including the likes of oil major ConocoPhillips (COP - Free Report) , while the existing players are expanding their presence to benefit from the basin’s high production and low-cost characteristics.

About the Deal

Per the $1.5 billion unit-for-unit deal, Andeavor Logistics, formerly known as Tesoro Logistics, will give 0.5233 units for each Western Refining Logistics unit to the latter’s unitholders. It means Andeavor Logistics will pay $25.28 for every Western Refining Logistics unit, which represents a premium of 6.4% to its closing price as of Aug 11, 2017. Andeavor Logistics expects the deal, which awaits regulatory approval from the unitholders of Western Refining Logistics, to be over in the fourth quarter of 2017.

We would like to remind investors that the parent entity of Andeavor Logistics, Andeavor - previously known as Tesoro Corp - had bought Western Refining for $4.1 billion in June. Western Refining was Western Refining Logistics’ parent entity. As part of that deal, Andeavor received a non-controlling stake in Western Refining Logistics.

The transaction will increase Andeavor’s ownership to around 127 million units. After the deal closes, Andeavor Logistics is also planning to issue 78 million of its units to Andeavor to cancel its incentive distribution rights.

Benefits for Andeavor Logistics

The deal is in line with Andeavor Logistics' strategy of investing more than $500-$600 million in organic and inorganic growth every year. We would like investors to know that Andeavor Logistics has a two-year backlog of $800-$900 million of identified organic growth projects. The partnership believes that it is well positioned for sustainable growth and the deal will provide additional organic growth opportunities in the Permian Basin. Andeavor recently announced plans to initiate the construction of Conan Crude Oil Gathering Pipeline, worth $225 million, in West Texas, which will be forwarded to Andeavor Logistics after the completion of the deal.

The deal will provide Andeavor Logistics the opportunity to increase its asset base by adding more crude oil pipelines and gathering systems in the Permian Basin in West Texas and Southern New Mexico. It will also lead to lower marginal cost of capital, strengthening the partnership’s credit profile. It will receive almost 1134 kilometers of pipelines along with active storage capacity of 12.4 million barrels. Andeavor Logistics will also benefit from Western Refining Logistics' distribution of wholesale petroleum products and crude oil and asphalt trucking businesses.

About the Partnership

Andeavor Logistics engages in the ownership, operation, development and acquisition of crude oil and refined products logistics assets. Its operating segments consist of Gathering, Processing and Terminalling and Transportation. Andeavor Logistics is headquartered in San Antonio, TX.

Price Performance and Zacks Rank

Andeavor Logistics has lost 21.1% of its value in the last six months compared with 12.5% fall of its industry.

The partnership missed the Zacks Consensus Estimate for the second quarter of 2017 by a penny. Over the last one month, no analysts have increased their earnings estimates for the current quarter, while two analysts have revised their estimate downward. The Zacks Consensus Estimate for the current quarter has declined from 78 cents per share to 70 cents in that period. It’s no surprise then that the stock has a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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