Tesoro Logistics To Buy QEP Resources Natural Gas Business For $2.5 Bln

(RTTNews) - Tesoro Logistics LP (TLLP) said Sunday that it has agreed to acquire QEP Resources Inc.'s (QEP) natural gas gathering and processing business, QEP Field Services LLC, for about $2.5 billion in cash. The deal values includes $230 million to refinance debt at QEP Midstream Partners.

The transaction includes the acquisition of QEP Field Services or QEPFS' 58 percent ownership interest in QEP Midstream Partners, LP (QEPM).

In a separate press release, QEP Midstream Partners LP or QEPM noted that in addition to other midstream assets, the field services business owns QEPM's general partner, which owns a 2 percent general partner interest in QEPM, and the partnership's incentive distribution rights as well as an about 56 percent limited partner interest.

The acquired assets, located in the Uinta, Vermillion, Green River and Williston basins, operate over 2,000 miles of natural gas and crude oil gathering and transmission pipeline. The assets have over 2.9 billion cubic feet per day of natural gas throughput capacity and over 54,000 barrels per day of crude oil throughput capacity.

San Antonio, Texas-based Tesoro Logistics noted that with the acquisition of QEPFS, it will become a full-service logistics company. The company, which is a master limited partnership controlled by refinery operator Tesoro Corp. (TSO), will acquire the strategically located natural gas gathering pipelines and processing facilities in the Rockies, Uinta and North Dakota.

Tesoro Logistics expects the diversified upstream customer base of QEPFS to drive its third-party revenues to about 50 percent, supporting its goal to grow into a full-service customer driven business.

Tesoro Logistics plans to further optimize the acquired assets by capturing incremental third-party volumes as an independent logistics service provider, and anticipates the combined operations to provide annual synergies of about $20 million.

Further, the company plans to substantially reduce QEPFS' existing commodity exposure through commercial contractual arrangements with Tesoro and its affiliates.

The transaction is expected to close in the fourth quarter of 2014 and be accretive to Tessoro Logistics' unitholders in the first year.

In conjunction with the transaction, Tesoro Corp. will invest $350 million in TLLP common units as well as maintain its 2 percent general partner interest. In connection with the closing of the deal, Tesoro will waive $10 million of general partner incentive distributions with respect to 2015.

Tesoro Logistics expects its quarterly cash distribution for the third quarter of 2014 to be $0.6425 per unit, or $2.57 on an annualized basis. This represents a 4 percent increase over the quarterly distribution of $0.615 per unit paid in August 2014.

Meanwhile, QEP Resources said in a separate statement that following the sale of QEPFS, it will retain ownership of QEPFS' Haynesville Gathering System. The company noted that the sale of the midstream business is a result of its ongoing review of strategic alternatives to maximize shareholder value.

QEP Resources had earlier said in June that its board of directors approved the spin off of Entrada Midstream Inc., formerly known as QEPFS.

Following closing of the deal, QEP Resources will be an independent exploration and production company, with assets in two of North America's most prolific crude oil provinces, the Williston and Permian Basins, and low-cost, high quality natural gas properties in the Rocky Mountains and in northwest Louisiana.

QEP Resources expects to be better positioned to deliver continued growth in production and adjusted EBITDA in 2015 and beyond.

TLLP closed Friday's trading at $67.08, up $3.48 or 5.47 percent on a volume of 247,356 shares.

QEP closed Friday's trading at $23.18, down $0.15 or 0.64 percent on a volume of 5.90 million shares. In after-hours, the stock gained $0.42 or 1.81 percent to $23.60.