Tesoro Logistics LP is purchasing a natural-gas pipeline and processing business from QEP Resources Inc. for $2.5 billion (including $230 million to refinance debt at QEPM), according to a statement by the two companies released on Sunday.
The deal will allow Tesoro Logistics to have a greater presence in the natural gas an oil market.
QEP operates oil and gas pipelines and gas-processing plants across Colorado, Utah, Wyoming, North Dakota, and Utah. Tesoro is buying a pipeline and gas-processing company owned by a subsidiary of QEP Resources called QEP Field Services.
Tesoro Logistics is controlled by the refinery operator Tesoro Corp. It usually serves its parent company but this deal will attract other customers too.
The deal represents a series of acquisitions involving master limited partnerships, a form of corporate structure often used by energy companies as that hand out larger dividends in exchange for lower tax payments.
Tesoro Logistics was created in 2011 and it has set a trend in the energy industry, with other major companies such as Philips and Valero Energy Corp forming their own master limited partnerships.
Investors seem to like master limited partnerships because of their high and dependable payouts.
Tesoro has said that it forecasts an increase by 4% in third quarter distribution, up to 64.25 cents a share.
Chuck Stanley, Chairman, President and CEO of QEP Resources, said in a news release by the company:
“This transaction allows us to maximize shareholder value by deploying proceeds from the sale through multiple avenues, including returning capital to shareholders, reducing debt, and improving our competitive position through increased capital investment in our premier E&P assets,”
“Post-closing, QEP will emerge as a more competitive and financially strong independent E&P 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. The sale of our midstream business is a significant milestone in the strategic repositioning of our company, as we believe QEP will be better positioned to deliver continued growth in production and Adjusted EBITDA in 2015 and beyond.
“We also expect this transaction will provide expanded opportunities for our talented midstream employees, to whom I want to express my sincere appreciation for their outstanding work and extraordinary dedication to building QEP’s midstream business over the past two decades.”