Item 1.01
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Entry into a Material Definitive Agreement.
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On July 1, 2016, Tesoro Corporation
(
Tesoro
) entered into a Contribution, Conveyance and Assumption Agreement (the
Contribution Agreement
) with Tesoro Logistics LP (the
Partnership
), Tesoro Logistics GP, LLC (the
General Partner
), Tesoro Logistics Operations LLC (the
Operating Company
) and Tesoro Alaska Company LLC (
TAC
). Pursuant to the Contribution Agreement, TAC has agreed to contribute, through the
General Partner and the Partnership, to the Operating Company the assets described below (the
Assets
):
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Tankage with a shell capacity of approximately 3,500,000 barrels located at TACs refinery in Kenai, Alaska, related equipment and ancillary facilities used for the operation thereof (collectively, the
Kenai Tankage
);
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all of TACs limited liability company interests (the
TAT Units
) in Tesoro Alaska Terminals LLC, a wholly-owned subsidiary of TAC, which owns (a) a bulk tank farm and terminal facility located at
the Port of Anchorage in Anchorage, Alaska with 580,000 barrels of in-service storage capacity for refined products and which facility includes a truck rack and a rail-loading facility, and (b) a terminal facility located at the Fairbanks
International Airport in Fairbanks, Alaska, with 22,500 barrels of in-service capacity for refined products and which facility includes a truck rack; and
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certain related assets used in connection with the foregoing assets.
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The consideration for the Assets will
total approximately $444 million. The contribution pursuant to the Contribution Agreement will be made in two stages.
In the first stage, which closed on
July 1, 2016, TAC contributed the Kenai Tankage to the General Partner in exchange for additional membership interests in the General Partner. The General Partner contributed such assets to the Partnership in consideration of the receipt by the
General Partner of approximately $239 million from the Partnership in cash, financed with borrowings under the Partnerships drop-down credit agreement, and the issuance of equity securities of the Partnership with a combined fair value of
approximately $27 million. The equity was comprised of 162,375 general partner units sufficient to restore and maintain the General Partners 2% general partner interest in the Partnership and 390,282 common units. The Partnership then
contributed such assets to the Operating Company.
In the second stage, upon the satisfaction of certain conditions precedent, TAC will contribute the TAT
Units to the General Partner in exchange for additional membership interests in the General Partner. The General Partner will contribute such assets to the Partnership in consideration of approximately $160 million from the Partnership in cash,
expected to be financed with borrowings under the Partnerships drop-down credit agreement, and the issuance of equity securities of the Partnership with a combined fair value of approximately $18 million. The equity will be comprised of a
sufficient number of general partner units to restore and maintain the General Partners 2% general partner interest in the Partnership and the remainder in common equity. The Partnership will then contribute the TAT Units to the Operating
Company.
In connection with the Contribution Agreement, Tesoro, TAC, Tesoro Refining and Marketing Company LLC (
TRMC
), the General
Partner, the Partnership and the Operating Company, as applicable, entered into the commercial agreements described below and agreed to enter into various additional commercial agreements on the closing date of the second stage of the contribution.
The foregoing description is not complete and is qualified in its entirety by reference to the Contribution Agreement, which is filed as Exhibit 2.1 to
this Current Report on Form 8-K and incorporated herein by reference.
Ground Lease
Effective on the first closing date, July 1, 2016, the Operating Company entered into a ground lease with TAC (the
Ground Lease
) under which
TAC leases to the Operating Company the portion of TACs petrochemical refinery located at Kenai, Alaska on which the Kenai Tankage is located. The term of the Ground Lease is 99 years, ending on June 30, 2115, and the rent for the entire term
was paid in full in advance by the Operating Company under the terms of the Contribution Agreement. The Operating Company is responsible for (i) the payment of real property taxes with respect to the portion of the premises on which the Kenai
Tankage is located, (ii) the payment of all utility costs with respect such premises, (iii) maintaining the buildings and improvements located on such premises and (iv) keeping all buildings and improvements on such premises insured against loss or
damage by fire. The Ground Lease is terminable upon condemnation or by TAC upon default by the Operating Company.
The foregoing description is not
complete and is qualified in its entirety by reference to the Ground Lease, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.
Storage Services Agreement
Effective on the first
closing date, July 1, 2016, the Operating Company entered into the Kenai Storage Services Agreement with TAC, the General Partner and the Partnership (the
Storage Services Agreement
) to govern the provision of storage services by
the Operating Company to TAC with respect to the Kenai Tankage. The initial term of the Storage Services Agreement will be for ten years. TAC will have the option to extend the term for up to two renewal terms of five years each. Under the Storage
Services Agreement, the Operating Company will provide storage and handling services for crude oil, refinery feedstocks, refined product and other materials owned by TAC and stored in one or more of the Operating Companys tanks. TAC shall pay
the fees specified in an applicable terminal service order to be executed by the Operating Company and TAC related to the dedication of such tanks and any ancillary services. All fees under the Storage Services that are to be set forth on terminal
service orders will be indexed for inflation. For up to two years after the termination of the Storage Services Agreement, and provided the termination was not due to TACs default, TAC may exercise a right of first refusal on any new storage
agreement the Operating Company offers to a third party.
The foregoing description is not complete and is qualified in its entirety by reference to the
Storage Services Agreement, which is filed as Exhibit 10.2 to this Current Report on Form 8-K and incorporated herein by reference.
Second Amended
and Restated Schedules to the Third Amended and Restated Omnibus Agreement
Tesoro entered into the Second Amended and Restated Schedules to the
Third Amended and Restated Omnibus Agreement (
Amended Omnibus Schedules
) with the General Partner, the Partnership, TRMC, TAC and Tesoro Companies, Inc., which amend and restate the schedules to the third amended and restated
omnibus agreement to include the Kenai Tankage subject to the Contribution Agreement. The Partnership expects to further amend and restate the Amended Omnibus Schedules in connection with the closing of the second stage of the contribution to
include the assets owned by TAT subject to the Contribution Agreement.
The foregoing description is not complete and is qualified in its entirety by
reference to the Amended Omnibus Schedules, which are filed as Exhibit 10.3 to this Current Report on Form 8-K and incorporated herein by reference.
Relationships
Each of the Partnership, the
General Partner, TRMC, TAC and the Operating Company is a direct or indirect subsidiary of Tesoro. As a result, certain individuals, including officers and directors of Tesoro and the General Partner, serve as officers and/or directors of more than
one of such other entities. After the first closing date, the General Partner, as the general partner of
the Partnership, holds 2,062,890 general partner units of the Partnership, which represents a 2% general partner interest, and 8,424,405 common units of the Partnership, which represents an 8.17%
limited partner interest in the Partnership. Tesoro, together with TRMC, TAC and the General Partner, holds 32,835,397 common units of the Partnership, which represent an approximate 31.8% limited partner interest, in addition to the 2% general
partner interest in the Partnership discussed above.