Tesoro acquires QEP gas pipeline, processing business for $2.5 billion

By JAMES PATON and JIM POLSON
Bloomberg

Tesoro Logistics agreed to buy QEP Resources' natural-gas pipeline and processing business for $2.5 billion in cash to expand its business in the Rocky Mountains and North Dakota.

The deal will add more than 2,000 miles (3,000 kilometers) of pipelines with the capacity to carry more than 2.9 billion cubic feet/day of gas and more than 54,000 bbl of oil, the San Antonio, Texas-based company said in a statement.

Tesoro Logistics is a partnership formed and controlled by refining company Tesoro Corp.

After the acquisition, about half of Tesoro Logistics’ sales will come from companies other than Tesoro Corp., “a critical part of our growth strategy,” CEO Gregory Goff said on a conference call with analysts.

“The large increases in domestic crude oil and natural gas production are driving significant infrastructure investments," he added.

Takeovers involving companies that help move and process oil and gas have surged this year. Targa Resources agreed to buy Atlas Pipeline Partners and Atlas Energy for $5.87 billion last week.

Williams Cos. and a subsidiary agreed in June to pay $6 billion for control of pipeline operator Access Midstream Partners.

Williams was said to be among the bidders for the QEP assets, people familiar with the matter said last week.

Investor Pressure

QEP said in June it would sell or spin off the unit, known as QEP Field Services, after activist investor Jana Partners urged the exploration and production company to focus on its main business. Jana has since sold its position in the Denver-based company.

QEP rose 7.6% to $24.95 at 9:34 a.m. in New York. Tesoro Logistics dropped 6.5% to $62.69 and Tesoro climbed 4.9% to $63.33.

As part of the transaction, Tesoro Logistics will get a 58% stake in QEP Midstream Partners, a publicly traded pipeline and processing partnership. Goff said it will acquire the rest of the unit later.

Tesoro Logistics expects to add gas processing and handling of fracking waste to its operations in North Dakota, the second-largest oil producing US state, Goff said. The partnership plans to spend $400 million expanding the unit’s operations, beginning with $100 million in 2015.

The partnership announced plans to sell $1.3 billion of senior notes and 19.4 million units to help fund the purchase. Investor payouts from Tesoro Logistics will double next year, Phil Anderson, president of the partnership, said on a call with analysts.

The transaction includes about $230 million to refinance debt and is expected to close before the end of the year, according to the statement. QEP will keep pipelines in the Haynesville Shale in the southern US.

‘Christmas Shopping’

QEP will be more competitive and in a better position to boost production after the deal as it focuses on the Williston and Permian oil basins, the company said in a separate statement.

“QEP can start doing some early Christmas shopping,” Tim Rezvan, a Sterne Agee Group Inc. analyst, wrote in a note to clients. The company may buy oil assets or producers whose shares have dropped because of a decline in crude prices, wrote Rezvan, who rates QEP a buy.

Bank of America advised Tesoro Logistics. QEP was advised by Deutsche Bank and Goldman Sachs Group.

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