Item 1.01 Entry into a Material Definitive Agreement.
Contribution, Conveyance and Assumption Agreement
On November 21, 2016, Tesoro Corporation ("
Tesoro
" or the "
Company
") entered into a Contribution, Conveyance and Assumption Agreement (the "
Contribution Agreement"
) with Tesoro Logistics LP (the "
Partnership
" or "
TLLP
"), Tesoro Refining & Marketing Company LLC ("
TRMC
"), Tesoro Logistics GP, LLC (the "
General Partner
" or "
TLGP
") and Tesoro Logistics Operations LLC (the "
Operating Company
" or "
TLO
"). Pursuant to the Contribution Agreement, TRMC agreed to contribute, through the General Partner and the Partnership, to the Operating Company the assets described below:
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tankage with a shell capacity of approximately 2,600,000 barrels of crude oil and other feedstock storage and approximately 2,900,000 barrels of refined product storage located at TRMC's refinery near Martinez in Contra Costa County, California (the "
Martinez Refinery"
), together with all related equipment and ancillary facilities used for the operation thereof (the "
Tankage"
);
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the assets (the "
Avon Marine Terminal Assets"
)
located at the Avon marine terminal facility, a single berth dock that serves as the main shipping and receiving point for the Martinez Refinery for the transfer of waterborne non-crude feedstocks, is the principal outbound marine delivery point for refined products and is directly connected to the refined products tankage located at the Martinez Refinery (the "
Avon Marine Terminal"
); and
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the pipelines, causeway and ancillary equipment that connect Tract 3 of the Tankage to the Avon Marine Terminal, as well as all associated easements, permits and licenses (the "
Avon Wharf Pipeway"
).
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The assets relating to the Tankage and the Avon Wharf Pipeway were transferred, in a series of contributions, to the Operating Company at the closing of the transactions on November 21, 2016. With respect to the Avon Marine Terminal Assets, the Operating Company entered into the Avon Marine Terminal Operating Agreement (described below), which is intended to be treated as a contribution of the Avon Marine Terminal Assets (including all economic benefits and burdens relating to those assets) as of the closing date. Transfer of the title to the Avon Marine Terminal Assets (the "
Avon Marine Terminal Assets Transfer"
) will be completed for no additional consideration after (i) the obtaining of a certificate of financial responsibility from the California Department of Fish and Game with respect to the sublease of the Avon Marine Terminal from TRMC to the Operating Company and (ii) the completion of certain renovation projects at the Avon Marine Terminal. If, however, the Operating Company receives the certificate of financial responsibility before the renovations are complete, the Operating Company may require that TRMC cause the conveyance of the Avon Marine Terminal Assets to the Operating Company and that TRMC sign certain agreements with the Operating Company related thereto.
The transactions contemplated in the Contribution Agreement were made in exchange for consideration from the Partnership to the General Partner of approximately $400 million, comprised of $360 million in cash financed with borrowings under the Partnership's acquisition credit facility, and the issuance of equity securities of the Partnership with a fair value of approximately $40 million. The equity was comprised of 17,570 general partner units to restore and maintain the General Partner's 2% general partner interest in the Partnership and 860,933 common units.
In connection with the Contribution Agreement, the Partnership, the Operating Company, Tesoro, TRMC and the General Partner, as applicable, entered into certain commercial agreements on November 21, 2016, which agreements are described below.
The foregoing description of the Contribution Agreement 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.
Fourth Amended and Restated Schedules to the Third Amended and Restated Omnibus Agreement
Tesoro entered into the Fourth Amended and Restated Schedules to the Third Amended and Restated Omnibus Agreement (the "
Amended Omnibus Schedules"
) with the General Partner, the Partnership, TRMC, Tesoro Alaska Company LLC ("
TAC"
) and Tesoro Companies, Inc. ("
TCI"
), which amend and restate the schedules to the Third Amended and Restated Omnibus Agreement to include the assets 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 10.1 to this Current Report on Form 8-K and incorporated herein by reference.
Storage Services Agreement
Effective November 21, 2016, the Operating Company entered into the Martinez Storage Services Agreement with TRMC, the General Partner and the Partnership (the "
Storage Services Agreement"
) to govern the provision of storage services by the Operating Company to TRMC with respect to the Tankage. The initial term of the Storage Services Agreement will be for ten years. TRMC 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, handling, blending and other services for crude oil, refinery feedstocks, refined product and other materials owned by TRMC and stored in one or more of the Operating Company's tanks and certain tanks which are outside of the storage facility, operated by the Operating Company and used to provide services under the Storage Services Agreement, but which remain owned by TRMC. TRMC shall pay the fees specified in an applicable terminal service order to be executed by the Operating Company and TRMC 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 TRMC's default, TRMC 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.
License Agreement
TRMC and the Operating Company entered into a license agreement (the "
License Agreement"
) pursuant to which TRMC granted the Operating Company the non-exclusive right to use, operate on and access the premises on which a portion of the Martinez Refinery is situated to operate and maintain the Tankage and related pipelines and to provide the storage services under the Storage Services Agreement. The License Agreement may be terminated by TRMC on 30 days' prior written notice to the Operating Company.
The foregoing description is not complete and is qualified in its entirety by reference to the License Agreement, which is filed as Exhibit 10.3 to this Current Report on Form 8-K and incorporated herein by reference.
Avon Marine Terminal Operating Agreement
Effective November 21, 2016, in connection with the contribution of the Tankage and the Avon Wharf Pipeway, the Operating Company entered into an operating agreement (the "
Avon Marine Terminal Operating Agreement"
) with TRMC, the General Partner and the Partnership under which the Operating Company will provide services relating to the operation of the Avon Marine Terminal for an interim period until TRMC is able to (i) sublease the property underlying the Avon Marine Terminal Assets to the Operating Company and (ii) convey the Avon Marine Terminal Assets to the Operating Company pursuant to the terms of the Contribution Agreement. Under the Avon Marine Terminal Operating Agreement, the Operating Company agrees that the General Partner will provide personnel, equipment and other services for the operation, management and maintenance of the Avon Marine Terminal and the Operating Company will reimburse TRMC for all amounts paid in rent to the State of California under TRMC's lease of the premises from the State of California and for all repair and maintenance costs and capital expenditures undertaken at the terminal.
As partial compensation for the Operating Company's services, TRMC will pay to the Operating Company a per-barrel fee for throughput of TRMC's products across the Avon Marine Terminal under applicable service orders executed by TRMC and the Operating Company. Additionally, TRMC will reimburse the Operating Company for certain pass-through costs allocable to TRMC's shipments at the Avon Marine Terminal, including for labor services, marine terminal fees, shore-side survey or inspector fees and regulatory costs. The Avon Marine Terminal Operating Agreement also contains reciprocal indemnification provisions.
The foregoing description is not complete and is qualified in its entirety by reference to the Avon Marine Terminal Operating Agreement, which is filed as Exhibit 10.4 to this Current Report on Form 8-K and incorporated herein by reference.
Amendment No. 3 to Secondment and Logistics Services Agreement
On November 21, 2016, the General Partner and certain of its indirect subsidiaries entered into Amendment No. 3 to the Secondment and Logistics Services Agreement (the "
Secondment Agreement Amendment"
) with TRMC, TCI, TAC, the Operating Company, Tesoro Logistics Pipelines LLC, Tesoro High Plains Pipeline Company LLC, Tesoro Logistics Northwest Pipeline LLC and Tesoro Alaska Pipeline Company LLC. Under the Secondment Agreement Amendment, the parties agree that either party may provide labor, materials, equipment and supplies to either the "Tesoro" group of companies or the "Tesoro Logistics" group of companies, that such work may be provided by third parties under contract with one of the parties to the Secondment Agreement Amendment and that the costs and expenses will be allocated to the parties that receive the benefits of such work.
The foregoing description of the Secondment Agreement Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Secondment Agreement Amendment, which is filed as Exhibit 10.5 to this Current Report on Form 8-K and incorporated herein by reference.
Sublease
At the time of the Avon Marine Terminal Assets Transfer, TRMC, as sublessor, and TLO, as sublessee, will enter into a sublease (the "
Sublease"
) for the Avon Marine Terminal leased by TRMC from the State of California, acting by and through the California State Lands Commission pursuant to a lease dated January 1, 2015 (the "
Master Lease"
). The term of the Sublease continues until the expiration of the Master Lease. Under the terms of the Sublease, TLO will: (i) pay all rent due under the Master Lease, (ii) be responsible for paying the required costs of maintenance and improvements to the Avon Marine Terminal under the Master Lease, (iii) be responsible for maintaining all of the insurance required under the Master Lease and (iv) be bound to operate the Avon Marine Terminal in accordance with all legal and regulatory requirements. TLO may, at any time following the termination of the MTUTA (as defined below), deliver TRMC a notice of its intent to cease the conduct of operations from the Avon Marine Terminal, and TRMC shall have the right, but not the obligation, to terminate the Sublease.
The foregoing description is not complete and is qualified in its entirety by reference to the Sublease, which is filed as Exhibit 10.6 to this Current Report on Form 8-K and incorporated herein by reference.
Avon Marine Terminal Use and Throughput Agreement
At the time of the Avon Marine Terminal Assets Transfer, the Operating Company will enter into the Avon Marine Terminal Use and Throughput Agreement (the "
MTUTA"
) with TRMC, the General Partner and the Partnership under which TLO will provide throughput service for TRMC's marine vessels and be compensated for such services. Under the MTUTA, TRMC will be obligated to transport an average of at least 892,500 barrels of product per month at a throughput and tankage fee of the higher of $0.63 per barrel or a monthly fee calculated by multiplying the minimum marine throughput volume by $0.63. Additionally, TRMC will reimburse the Operating Company for certain pass-through costs allocable to TRMC's shipments at the Avon Marine Terminal, including for labor services, marine terminal fees, shore-side survey or inspector fees and regulatory costs. The MTUTA also contains reciprocal indemnification provisions. The initial term of the MTUTA expires on the ten-year anniversary date of the effectiveness of the MTUTA, however, TRMC may extend the term for up to two renewal terms of five years each.
The foregoing description is not complete and is qualified in its entirety by reference to the MTUTA, which is filed as Exhibit 10.7 to this Current Report on Form 8-K and incorporated herein by reference.
Relationships
Each of the Partnership, the General Partner, TRMC, TCI, Tesoro SoCal Pipeline Company, LLC, 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 contribution, the General Partner, as the general partner of the Partnership, holds 2,100,900 general partner units of the Partnership, which represents a 2% general partner interest, and 9,644,050 common units of the Partnership, which represents an 9.2% limited partner interest in the Partnership. Tesoro, together with TRMC, Carson Cogeneration Company, TAC and the General Partner, holds 34,055,042 common units of the Partnership, which represent an approximate 32.4% limited partner interest, in addition to the 2% general partner interest in the Partnership discussed above.