Tesoro Completes $5.8B Acquisition of Western Refining

Provides Additional Information on Combined Operations and Synergies

Tesoro Corporation, June 5, 2017

Tesoro Corporation("Tesoro") and Western Refining, Inc. ("Western") recently announced that Tesoro has completed its acquisition of Western for a total consideration of approximately $5.8 billion. The strategic combination of the two companies brings together refining, marketing and logistics businesses that form a powerful, integrated value chain with significant marketing and logistics growth opportunities in key areas in the United States. Tesoro and Western first announced Tesoro's expected acquisition of Western on November 17, 2016. The Company remains committed to achieving the initially announced expected EPS accretion of 10% to 13% in 2018, the first full year of operations of the combined company.

As previously announced, Tesoro will change its name to Andeavor and Tesoro Logistics LP will change its name to Andeavor Logistics on Aug. 1, 2017.

"We are excited about the continued transformation of Tesoro and our acquisition of Western represents another significant milestone in our journey," said Greg Goff, Chairman and CEO. "Acquiring the business at an attractive price relative to its intrinsic value and the delivery of synergies positions us well to create significant shareholder value. We are well prepared and will immediately move forward with the integration of our companies and capturing synergies. We have evaluated ideas and opportunities to capture synergies over the last few months and are very confident in our ability to achieve our target of $350 to $425 million in annual synergies."

As previously announced, Greg Goff will continue to serve as Chairman, President and Chief Executive Officer and Steven Sterin will continue to serve as Executive Vice President, Chief Financial Officer and President, Tesoro Logistics. In addition, Western's former Executive Chairman, Paul Foster, and Western's former Chief Executive Officer, Jeff Stevens, will soon join Tesoro's Board as directors. Tesoro's headquarters will remain in San Antonio, TX.


Tesoro is confident in delivering an expected $350 to $425 million in annual synergies with this run rate expected to be achieved by June 2019, the second year following the closing of the transaction. This includes approximately $120 to $160 million from value chain optimization, $130 to $140 million from operational improvements and $100 to $125 million from corporate efficiencies. The table below provides some of the specific actions in each of these categories that are expected to drive synergy capture.

Expected Synergies ($ millions)  
Value Chain Optimization 120 - 160
  Type Select Synergies
  Feedstock supply Optimizing domestic and Canadian crude oil purchases and resale within expanded refinery and logistics network
  Product distribution Expanding and optimizing product placement in the Southwest and Mid-continent regions of the U.S. and Mexico
  Product improvements Optimizing increased product supply and storage flexibility; utilizing new asphalt capabilities and heavy oils disposition across expanded network
  Renewable fuels efficiencies Increased ability to optimize renewable fuels purchases and transportation
  Logistics optimization Higher utilization of logistics assets across the larger value chain
  Energy efficiencies Increased efficiencies on natural gas and electricity sourcing and utilization
Operational Improvements 130 - 140
  Type Select Synergies
  Refinery optimization Improving operations through increased in-house technical expertise, optimized gasoline blending and increased use of advanced process controls
  Material and services sourcing Purchasing capability through consolidation of vendors on improved terms and conditions
  Logistics efficiencies Optimizing rail and truck operations across expanded system and capturing sourcing efficiencies
  Organic growth projects Early identified, high return refining and logistic opportunities
  Retail efficiencies Leveraging company owned, company operated model to select Tesoro geographies; refreshing SuperAmerica brand
  Channel of trade improvements Optimizing the various marketing outlets across the combined system, including expanding ARCO in the Southwest region
Corporate Efficiencies 100 - 125
  Type Select Synergies
  Cost savings Improving headquarter expenses; leveraging economies of scale in back office support functions; lower combined audit fees, property and casualty premiums, and information technology system costs
Total Estimated Annual Synergies 350 - 425


Tesoro is committed to creating value for shareholders by continuously improving the business. In 2017, we remain committed to delivering an estimated $475 to $575 million of annual improvements in operating income which is comprised of $395 to $475 million from growth and productivity and $80 to $100 million from higher throughput and other operational improvements. These improvements are expected to consist of $305 to $355 million in Refining, $125 to $150 million in Logistics and $45 to $70 million in Marketing. Through the first five months of the year, the Company is on pace to achieve these goals. These expected annual improvements to operating income exclude the expected synergies from the Western acquisition.


Tesoro's Logistics business now consists of its approximate 33% limited partnership ownership interest in Tesoro Logistics LP and ownership of its general partner as well its approximate 53% limited partnership ownership interest of Western Refining Logistics, LP and ownership of its general partner. Tesoro recently updated its Schedule 13D beneficial ownership filing with the SEC with respect to TLLP, indicating its intentions to work with the board of directors and management of TLLP to consider, discuss and undertake to negotiate a merger, consolidation or combination (in whatever form) of assets held by and securities issued by TLLP and its affiliates and assets held by and securities issued by WNRL and its affiliates and to consider, discuss, and undertake to negotiate changes to the capital structure of TLLP, including with respect to incentive distribution rights. The Company is committed to growing the value of the combined logistics portfolio and its current logistics growth strategy will be deployed across the expanded business. Tesoro expects to use the parent company's strong operating and execution capability to enhance the portfolio of opportunities in the high-growth Permian and other attractive crude oil basins. This will include investments in crude oil gathering and storage, as well as natural gas gathering and processing.


Tesoro now expects total capital expenditures of approximately $1.35 billion, consisting of approximately $1.0 billion at Tesoro, $325 million at TLLP and $25 million at WNRL. Turnaround expenditures for the full year 2017 are expected to be approximately $465 million. Capital expenditures and turnaround expenditures for 2017 include the full year spend for Tesoro and seven months, June through December 2017, for the acquired business.


Tesoro's highly integrated business and financial discipline deliver strong cash flows providing growth in shareholder value through investments in high-return capital projects, and returning cash to shareholders in the form of dividends and share repurchases. Tesoro previously announced an increase to its share repurchase authorization by $1.0 billion to over $2.0 billion in total.

The Company is committed to maintaining a strong balance sheet and credit metrics and believes it is positioned to achieve an investment grade credit rating from Standard & Poor's, who in November 2016 placed Tesoro on CreditWatch with positive implications, indicating that after the transaction closes, the agency would consider assigning Tesoro a "BBB-"credit rating. Also, in February 2017, Fitch Ratings assigned a first-time Long-Term Issuer Default Rating of BBB- to both Tesoro and TLLP, marking the companies' inaugural investment grade credit ratings. Tesoro's current quarterly dividend is $0.55 per share (or $2.20 per share annualized) and the Company remains focused on growing dividends commensurate with the growth of the Company.

In summary, Tesoro is well positioned to deliver exceptional value to shareholders from the attractive acquisition of Western; delivering expected annual synergies of $350 to $425 million; the delivery of an expected $475 to $575 million of annual improvements in operating income in 2017; expected improvements to the capital structure of TLLP; and the commitment to create value through the growth of the combined logistics business.


Additional information regarding Tesoro's updated reporting structure and future updates to the Tesoro Index can be found on the Investor Relations portion of the Company's website at

About Tesoro Corporation

Tesoro Corporation, soon to become Andeavor, is an independent refiner and marketer of petroleum products. Tesoro, through its subsidiaries, operates 10 refineries in the western United States with a combined capacity of over 1.1 million barrels per day and ownership in a logistics business, which includes interest in Tesoro Logistics LP and Western Refining Logistics, LP and ownership of their general partners. Tesoro's retail-marketing system includes approximately 3,000 retail stations marketed under multiple well-known fuel brands, including ARCO®, SuperAmerica®, Shell®, Exxon®, Mobil®, Conoco®, Tesoro®, USA Gasoline(TM) and Giant®.

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