Tesoro Buys Western Refining in Large Expansion

BI Refinacin/mrketing, Norteamrica Tablero

Gurpal Dosanjh
BI Analista de industria

1. Tesoro's Deal for Western Will Expand Capacity at High Margins

11/17/16

(Bloomberg Intelligence) -- Tesoro's pending purchase of peer Western Refining helps diversify the company into
the Gulf Coast. Tesoro has 85% of its refining capacity on the West Coast, in the PADD 5 region, and that will fall
to 64% after the transaction. Tesoro's management reiterated an investment grade credit rating is a priority,
though leverage is up in the short-term on this deal. The transaction also adds assets that have had some of the
best refining margins, compared with the peer group, in the past two years.
Key Points:
Tesoro's Acquisition at Small Premium to Western's Valuation
Acquisition Diversifies Tesoro's Refining Presence to Gulf Coast
Western Refining Margins Among Peers' Best, Growing Organically
Tesoro Logistics May Expand After Sponsor's Acquisition Closes
Tesoro Retains Logistics Backlog of $500 Million Ebitda for MLP

2. Tesoro's Acquisition at Small Premium to Western's Valuation

11/17/16

Tesoro is purchasing peer Western Refining in a $5.9 billion deal including debt. The deal is at a 7.35x multiple of
2017 Ebitda, just higher than Western's 7.18x trading multiple. The small premium is due to refining margins
being at multiyear lows, which may make this an ideal time for M&A in the sector. Tesoro is funding most of the
$4.1 billion equity portion with shares, though Western shareholders can take an equivalent cash payment, up to
10% of the total deal amount.
Transaction Details

3. Acquisition Diversifies Tesoro's Refining Presence to Gulf Coast

11/17/16

Tesoro is expanding its refining presence to the Gulf Coast with the pending Western deal. The $5.9 billion
transaction, including debt, will reduce its exposure to the West Coast while boosting refining capacity in the
Midwest and adding the Gulf Coast. The Midwest and Gulf Coast will compose 30% of Tesoro's pro forma
capacity, which will rise to 1.15 million barrels a day after the deal closes, expected in 1H. Synergies between the
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St. Paul Park, Minnesota, plant and Tesoro's North Dakota refinery will cut costs.
Tesoro and Western Refineries

4. Western Refining Margins Among Peers' Best, Growing Organically

11/14/16

Western Refining has some of the best margins among oil refiners, but growth may be challenged, given the
company's relatively small amount of capacity. Margin improvements, especially at the larger El Paso, Texas,
refinery, have assisted earnings, and the move to source more local crude oil will help the company add as much
as $25 million in annual earnings at the refinery by 2017. A recent expansion at the St. Paul Park refinery in
Minnesota should help boost Ebitda by $59 million a year.
WNR's Gross Refining Margin vs. Peers

5. Tesoro Logistics May Expand After Sponsor's Acquisition Closes

11/17/16

Tesoro Logistics may grow following its sponsor's takeover of Western Refining. After the deal closes, Tesoro will
own the general partner of two MLPs, Tesoro Logistics and Western Refining Logistics. This will add to the
possibility of a merger between the two MLPs, though it also enhances organic growth prospects, with the two
companies involved in crude oil or natural gas gathering in four different regions. This is in addition to the $1
billion of dropdowns already anticipated for Tesoro Logistics by 2018.

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.

Pro Forma Logistics Operations

6. Tesoro Retains Logistics Backlog of $500 Million Ebitda for MLP

11/16/16

Tesoro keeps logistics assets with a combined Ebitda of as much as $500 million a year, which would be eligible
to be dropped down into the company's sponsored MLP. Valuations for dropdowns have fallen from highs of 10x
in 2014, though there have been recent signs of a recovery to about 8x-9x. These assets will continue be sold
gradually into Tesoro Logistics LP, with the sale and the resulting increase in received distributions lifting earnings
for Tesoro.
Tesoro's Planned Dropdowns to Logisitics MLP

Para ponerse en contacto con el analista de este estudio:

Gurpal Dosanjh al gdosanjh2@bloomberg.net

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP
("BFLP") and its subsidiariesin all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP
("BLP"). BLP provides BFLP with all the global marketingand operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the
BLP Countries. BFLP, BLP and their affiliates do not provide investment advice,and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.