Attached files
| file | filename |
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| EXCEL - IDEA: XBRL DOCUMENT - ANDEAVOR LOGISTICS LP | Financial_Report.xls |
| 8-K - ANDEAVOR LOGISTICS LP | tllp8-k05x22x2012.htm |
| EX-99.1 - Q1 2012 UNAUDITED FINANCIAL STATEMENTS - ANDEAVOR LOGISTICS LP | tllpex9915222012.htm |
Exhibit 99.2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, references in this report to "Tesoro Logistics LP," "TLLP," "the Partnership," "we," "us" or "our" may refer to Tesoro Logistics LP, one or more of its consolidated subsidiaries or all of them taken as a whole. Unless the context otherwise requires, references in this report to "Tesoro" or our "Sponsor" refer collectively to Tesoro Corporation and any of its subsidiaries, other than Tesoro Logistics LP, its subsidiaries and its general partner.
The information presented in this Form 8-K contains the unaudited condensed combined financial results of Tesoro Logistics LP Predecessor ("TLLP Predecessor"), our predecessor for accounting purposes, and the unaudited condensed consolidated financial results of TLLP for the three months ended March 31, 2012. The TLLP Predecessor includes the financial results of the initial net assets contributed by Tesoro during the initial public offering for the three months ended March 31, 2011.
On April 1, 2012, we entered into a transaction (the "Contribution") with Tesoro, Tesoro Refining and Marketing Company ("TRMC"), Tesoro Logistics GP, LLC ("TLGP"), and our subsidiary, Tesoro Logistics Operations LLC ("TLO"), pursuant to which TRMC contributed through TLGP and TLLP to TLO the Martinez Crude Oil Marine Terminal assets (the "Martinez Terminal"). This transaction is a transfer between entities under common control and is accounted for as if the transfer occurred at the beginning of the period presented, and prior periods are retrospectively adjusted to furnish comparative information similar to the pooling method. Accordingly, the financial information contained herein of the TLLP Predecessor and TLLP have been retrospectively adjusted to include the historical results of the Martinez Terminal for all periods presented. The results of the Martinez Terminal are included in the Terminalling, Transportation and Storage segment. We refer to the historical results of the TLLP Predecessor and the Martinez Terminal collectively as our Predecessors. Our Predecessors did not record revenue for intercompany trucking, terminalling, storage and short-haul pipeline transportation services. See "Overview and Business Strategy" for further information regarding the Contribution.
Those statements in this section that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See "Important Information Regarding Forward-Looking Statements" on page 15 for a discussion of the factors that could cause actual results to differ materially from those projected in these statements.
This section should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in a Form 8-K filed with the Securities and Exchange Commission ("SEC") on May 22, 2012, which retrospectively adjusts our annual historical financial statements to include the activities of the Martinez Terminal.
OVERVIEW AND BUSINESS STRATEGY
We are a fee-based, growth-oriented Delaware limited partnership formed by Tesoro to own, operate, develop and acquire logistics assets. Our logistics assets are integral to the success of Tesoro's refining and marketing operations and are used to gather crude oil and to distribute, transport and store crude oil and refined products. Upon completion of the contribution described below, our assets consist of a crude oil gathering system in the Bakken Shale/Williston Basin area of North Dakota and Montana, eight refined products terminals in the midwestern and western United States, one crude oil marine terminal in California, a crude oil and refined products storage facility and five related short-haul pipelines in Utah.
Effective April 1, 2012, as part of our strategy to make capital investments to expand our existing asset base, we acquired Tesoro's Martinez Terminal in the Contribution pursuant to which Tesoro contributed the Martinez Terminal to the Partnership in exchange for consideration from TLLP to our general partner, TLGP, of $75.0 million, comprised of $67.5 million in cash financed with borrowings under the Revolving Credit Facility and the issuance of equity with a combined fair value of $7.5 million. The assets included in the Contribution include a single-berth dock, which has an estimated throughput capacity of approximately 145,000 barrels per day ("bpd"), five associated crude oil storage tanks with a combined capacity of 425,000 barrels, five short-haul pipelines and two firewater tanks with 48,000 barrels of shell capacity.
The single-berth dock and related leasehold improvements are situated on an offshore parcel of land that is currently being leased by Tesoro from the California State Lands Commission under a term lease (the "Martinez Terminal Lease"). The Martinez Terminal Lease, related leasehold improvements and the short-haul pipelines will not be legally transferred to TLLP until the Wharf Lease is renewed and extended, and the transfer is approved by the California State Lands Commission.
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The financial information contained herein includes, for each period presented, the assets, liabilities, equity and results of operations of our Predecessors and TLLP. Transfers of a business between entities under common control are accounted for as if the transfer occurred at the beginning of the period, and prior years are retrospectively adjusted to furnish comparative information. Accordingly, our financial information includes the historical results of our Predecessors (for all periods presented) and the results of TLLP (for the three months ended March 31, 2012). The financial statements of our Predecessors have been prepared from the separate records maintained by Tesoro and may not necessarily be indicative of the conditions that would have existed or the results of operations if our Predecessors have been operated as an unaffiliated entity. Most notably, this applies to the revenue associated with the terms of the commercial agreements as our Predecessors did not record revenues for intercompany trucking, terminalling, storage and short-haul pipeline transportation services or any services provided at the Martinez Terminal.
The Partnership generates revenue by charging fees for gathering, transporting and storing crude oil and for terminalling, transporting and storing crude oil and refined products. Since we do not own any of the crude oil or refined products that we handle nor engage in the trading of crude oil or refined products, we have minimal direct exposure to risks associated with commodity price fluctuations. However, these risks indirectly influence our activities and results of operations over the long term through their effects on our customers' operations. Currently, substantially all of our revenue is derived from Tesoro under various long-term, fee-based commercial agreements that generally include minimum volume commitments.
Strategy and Goals
Our primary business objectives are to maintain stable cash flows and to increase our quarterly cash distribution per unit over time. We intend to accomplish these objectives by executing the following strategies:
• | focus on opportunities to provide committed fee-based logistics services to Tesoro and third parties; |
• | evaluate investment opportunities that may arise from the growth of Tesoro's refining and marketing business or from increased third-party activity to make capital investments to expand our existing asset base; |
• | pursue accretive acquisitions of complementary assets from Tesoro as well as third parties; and |
• | seek to enhance the profitability of our existing assets by pursuing opportunities to add Tesoro and third-party volumes, improve operating efficiencies and increase utilization. |
Since the closing of the initial public offering (the "Offering") on April 26, 2011, we have been implementing our strategy and goals discussed above to grow our distributable cash flow. Relative to these goals, in 2012:
• | we have increased throughput at our Los Angeles terminal by 5,000 bpd beginning in February 2012 upon securing permits for higher ethanol volumes; and |
• | completed the Contribution of the Martinez Terminal, effective April 1, 2012, which is expected to add approximately 70,000 bpd of terminalling throughput with a wharf capacity of 145,000 bpd and storage capacity of 425,000 barrels. |
In the future, we intend to continue to implement this strategy and have announced plans to:
• | expand our assets on the High Plains system in support of Tesoro's increased demand for Bakken crude oil, including: |
◦ | growing our pipeline gathering system to deliver an additional 10,000 bpd to Tesoro's North Dakota refinery and deliver 30,000 bpd to Rangeland's facility to support Tesoro's announced strategy to move Bakken crude oil to its Washington refinery; |
◦ | growing trucking volumes to 35,000 bpd by expanding our proprietary fleet, which should capture cost and operating efficiencies, and through the opportunities provided by the amended trucking transportation agreement; and |
◦ | adding other origin and destination points on the High Plains system to increase volumes by 10,000 bpd; and |
• | increase our terminalling volumes by 25,000 bpd by year-end 2013 by expanding capacity at our Los Angeles, Mandan and Stockton terminals and by growing our third-party services at our Boise, Burley, Vancouver and Stockton terminals. A project for waxy crude offloading, originally planned for 2013, with throughput of 20,000 bpd has been rescheduled for 2014 to coincide with maintenance downtime at Tesoro's Salt Lake City ("SLC") refinery. |
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Commercial Agreements with Tesoro
The Partnership has various long-term, fee-based commercial agreements with Tesoro under which we provide pipeline transportation, trucking, terminal distribution and storage services to Tesoro, and Tesoro commits to provide us with minimum monthly throughput volumes of crude oil and refined products. We believe the terms and conditions under these agreements, as well as our other agreements with Tesoro described below, are generally no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. These commercial agreements with Tesoro include:
• | a 10-year pipeline transportation services agreement under which Tesoro pays the Partnership fees for gathering and transporting crude oil on our High Plains system; |
• | a crude oil trucking transportation services agreement under which Tesoro pays the Partnership fees for trucking related services and scheduling and dispatching services that we provide through our High Plains truck-based crude oil gathering operation, which was amended effective January 1, 2012 to extend the agreement to five years and convert fees to mileage-based rates; |
• | a 10-year master terminalling services agreement under which Tesoro pays the Partnership fees for providing terminalling services at our eight refined products terminals; |
• | a 10-year pipeline transportation services agreement under which Tesoro pays the Partnership fees for transporting crude oil and refined products on our five SLC short-haul pipelines; and |
• | a 10-year SLC storage and transportation services agreement under which Tesoro pays the Partnership fees for storing crude oil and refined products at our SLC storage facility and transporting crude oil and refined products between the storage facility and Tesoro's Utah refinery through interconnecting pipelines on a dedicated basis. |
Martinez Terminal Use and Throughput Agreement. In addition to the commercial agreements described above, the Partnership entered into a 10-year use and throughput agreement with Tesoro in connection with the Contribution of the Martinez Terminal, effective April 1, 2012, under which they are obligated to transport an average of at least 65,000 bpd of crude oil per month at a throughput and tankage fee of $0.55 per barrel. An excess volume throughput fee of $0.10 per barrel will be charged for monthly average volumes in excess of 70,000 bpd. In addition, Tesoro will pay a $30,000 per month fee for unlimited use of the refined products pipeline from Tesoro's Martinez refinery to a third-party terminal.
Each of these agreements, other than the SLC storage and transportation services agreement, contain minimum volume commitments. Except for the amended trucking transportation services agreement, the fees under each agreement are indexed for inflation, and the agreements give Tesoro the option to renew for two five-year terms. The fees under the amended trucking transportation services agreement are adjusted annually on July 1 as a result of a competitive bidding process, and the agreement will renew automatically for one five-year term unless earlier terminated by us or Tesoro.
Other Agreements with Tesoro
In addition to the commercial agreements described above, we also entered into, or are contemplating entering into, the following agreements with Tesoro:
Amended and Restated Omnibus Agreement. The Partnership entered into an omnibus agreement with Tesoro at the closing of the Offering. Effective April 1, 2012, the Partnership entered into an amended and restated omnibus agreement ("Amended Omnibus Agreement") with Tesoro in connection with the Contribution of the Martinez Terminal. Additional contributions from Tesoro to the Partnership, including the assets in the Contribution, are governed by the Amended Omnibus Agreement. The annual fee payable to Tesoro under the Amended Omnibus Agreement remained $2.5 million for the provision of various general and administrative services. Additionally, under the Amended Omnibus Agreement, Tesoro indemnifies us for certain matters including environmental, title and tax matters associated with the ownership of our assets at or before the closing of the Offering on April 26, 2011 or the Contribution of the Martinez Terminal and the aggregate annual deductible for each type (unknown environmental liabilities or title matters) of liability was increased from $0.25 million to $0.4 million before we are entitled to indemnification in any calendar year.
Unit Train Unloading Facility. Tesoro has announced that it expects to offer the Anacortes, Washington unit train unloading facility to the Partnership. It is expected that the project will be completed as early as September 2012. The project includes unloading facilities for dedicated trains of rail cars ("unit trains") and is expected to deliver up to 30,000 bpd of Bakken crude oil to Tesoro's Washington refinery.
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Amended and Restated Operational Services Agreement. The Partnership entered into an operational services agreement with Tesoro at the closing of the Offering. Effective April 1, 2012, the Partnership entered into an amended and restated operational services agreement with Tesoro in connection with the Contribution of the Martinez Terminal, which increased the annual fee we pay Tesoro from $0.3 million to $1.5 million for operational services performed by certain of Tesoro's field-level employees in support of our pipelines, terminals and storage facilities.
Non-U.S. GAAP Financial Measures
Our management uses a variety of financial and operating metrics to analyze operating segment performance. These metrics are significant factors in assessing our operating results and profitability and include financial measures not prescribed by accounting principles generally accepted in the United States of America ("non-U.S. GAAP") such as earnings before interest, income taxes, depreciation and amortization expenses ("EBITDA") and Distributable Cash Flow. We define EBITDA as net income (loss) before net interest and financing costs and depreciation and amortization expenses. We define distributable cash flow as EBITDA less net cash interest paid, deferred revenue related to shortfall payments (if any), maintenance capital expenditures and payment of financing costs, plus reimbursement by Tesoro for certain maintenance capital expenditures and non-cash unit-based compensation expense. EBITDA and distributable cash flow are not measures prescribed by U.S. GAAP but are supplemental financial measures that are used by management and may be used by external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, to assess:
• | our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or financing methods; |
• | the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; |
• | our ability to incur and service debt and fund capital expenditures; and |
• | the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities. |
We believe that the presentation of EBITDA will provide useful information to investors in assessing our financial condition and results of operations. The U.S. GAAP measures most directly comparable to EBITDA are net income (loss) and net cash from (used in) operating activities. EBITDA should not be considered as an alternative to U.S. GAAP net income (loss) or net cash from (used in) operating activities. EBITDA has important limitations as an analytical tool, because it excludes some, but not all, items that affect net income (loss) and net cash from (used in) operating activities. You should not consider EBITDA in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Our definition of EBITDA may not be comparable to similarly titled measures of other companies, because it may be defined differently by other companies in our industry, thereby diminishing its utility.
We believe that the presentation of distributable cash flow will provide useful information to investors as it is a widely accepted financial indicator used by investors to compare partnership performance, as it provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating. The U.S. GAAP measure most directly comparable to distributable cash flow is net income. The amounts included in the calculation of distributable cash flow are derived from amounts separately presented in our condensed combined consolidated financial statements, with the exception of maintenance capital expenditures, reimbursement by Tesoro for certain maintenance capital expenditures and payment of financing costs. Distributable cash flow should not be considered in isolation or as an alternative to net income or operating income as an indication of our operating performance or as a substitute for analysis of our results as reported under U.S. GAAP. Distributable cash flow is not necessarily comparable to similarly titled measures of other companies, because it may be defined differently by other companies in our industry, thereby diminishing its utility.
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Factors Affecting the Comparability of Our Financial Results
The Partnership's future results of operations may not be comparable to the Predecessors' historical results of operations for the reasons described below:
Revenues. There are differences in the way our Predecessors recorded revenues and the way the Partnership records revenues after completion of the Offering. Our assets have historically been a part of the integrated operations of Tesoro, and our Predecessors generally recognized only the costs and did not record revenue associated with the trucking, terminalling, storage and short-haul pipeline transportation services provided to Tesoro on an intercompany basis, including the Martinez Terminal. Accordingly, the revenues in our Predecessors' historical combined financial statements relate only to amounts received from third parties for these services and amounts received from Tesoro with respect to transportation regulated by the Federal Energy Regulatory Commission ("FERC") and the North Dakota Public Service Commission ("NDPSC") on our High Plains system.
The Partnership's revenues are generated by existing third-party contracts and from commercial agreements we entered into with Tesoro at the closing of the Offering, and subsequent to the Offering, under which Tesoro pays us fees for gathering crude oil and distributing, transporting and storing crude oil and refined products. The commercial agreements with Tesoro are described in "Commercial Agreements with Tesoro."
General and Administrative Expenses. Our Predecessors' general and administrative expenses included direct charges for the management and operation of our logistics assets and certain expenses allocated by Tesoro for general corporate services, such as treasury, accounting and legal services. These expenses were charged, or allocated, to our Predecessors based on the nature of the expenses.
Tesoro continues to charge the Partnership a combination of direct charges for the management and operation of our logistics assets and a fixed annual fee for general corporate services, such as treasury, accounting and legal services. We also incur additional incremental general and administrative expenses as a result of being a separate publicly-traded partnership.
Financing. There are differences in the way the Partnership finances operations as compared to the way our Predecessors financed their operations. Historically, our Predecessors' operations were financed as part of Tesoro's integrated operations and our Predecessors did not record any separate costs associated with financing its operations. Additionally, our Predecessors largely relied on internally generated cash flows and capital contributions from Tesoro to satisfy its capital expenditure requirements. The Partnership expects ongoing sources of liquidity to include cash generated from operations, reimbursement by Tesoro for certain capital expenditures, borrowings under our Revolving Credit Facility and issuances of additional debt and equity securities.
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RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2012 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2011
A discussion and analysis of the factors contributing to our results of operations presented below includes the combined financial results of our Predecessors and the consolidated financial results of TLLP (for the three months ended March 31, 2012). The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance.
Combined Overview
The following table and discussion is a summary of our results of operations for the three months ended March 31, 2012 and 2011, including a reconciliation of EBITDA to net income (loss) and net cash from (used in) operating activities and distributable cash flow to net income (in thousands, except unit and per unit amounts):
Three Months Ended March 31, | |||||||
2012 | 2011 | ||||||
REVENUES (a) | $ | 27,085 | $ | 6,270 | |||
COSTS AND EXPENSES | |||||||
Operating and maintenance expenses | 11,245 | 10,027 | |||||
Depreciation and amortization expenses | 2,527 | 2,527 | |||||
General and administrative expenses | 3,427 | 1,461 | |||||
Loss on asset disposals | 236 | 25 | |||||
Total Costs and Expenses | 17,435 | 14,040 | |||||
OPERATING INCOME (LOSS) | 9,650 | (7,770 | ) | ||||
Interest and financing costs, net | (511 | ) | — | ||||
NET INCOME (LOSS) | 9,139 | (7,770 | ) | ||||
Less: Loss attributable to Predecessors | (2,417 | ) | (7,770 | ) | |||
Net income attributable to partners | 11,556 | — | |||||
Less: General partner's interest in net income | 230 | — | |||||
Limited partners' interest in net income | $ | 11,326 | $ | — | |||
Net income per limited partner unit: | |||||||
Common - basic and diluted | $ | 0.37 | |||||
Subordinated - basic and diluted | $ | 0.37 | |||||
Weighted average limited partner units outstanding: | |||||||
Common units - basic | 15,254,890 | ||||||
Common units - diluted | 15,297,023 | ||||||
Subordinated units - basic and diluted | 15,254,890 | ||||||
EBITDA (b) | $ | 12,177 | $ | (5,243 | ) | ||
Distributable Cash Flow (b) | $ | 10,888 | |||||
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Three Months Ended March 31, | |||||||
2012 | 2011 | ||||||
Reconciliation of EBITDA to Net Income (Loss): | |||||||
Net income (loss) | $ | 9,139 | $ | (7,770 | ) | ||
Add: Depreciation and amortization expenses | 2,527 | 2,527 | |||||
Add: Interest and financing costs, net | 511 | — | |||||
EBITDA (b) | $ | 12,177 | $ | (5,243 | ) | ||
Reconciliation of EBITDA to Net Cash from (used in) Operating Activities: | |||||||
Net cash from (used in) operating activities | $ | 13,327 | $ | (6,484 | ) | ||
Less: Changes in assets and liabilities | 888 | (1,266 | ) | ||||
Less: Amortization of debt issuance costs | 159 | — | |||||
Less: Unit-based compensation expense | 378 | — | |||||
Less: Loss on asset disposals | 236 | 25 | |||||
Add: Interest and financing costs, net | 511 | — | |||||
EBITDA (b) | $ | 12,177 | $ | (5,243 | ) | ||
Reconciliation of Distributable Cash Flow to Net Income: | |||||||
Net income | $ | 9,139 | |||||
Add: Depreciation and amortization expenses | 2,527 | ||||||
Add: Interest and financing costs, net | 511 | ||||||
Less: Cash interest paid, net | 367 | ||||||
Less: Maintenance capital expenditures (c) | 768 | ||||||
Less: Payment of financing costs | 532 | ||||||
Add: Non-cash unit-based compensation expense | 378 | ||||||
Distributable Cash Flow (b) | $ | 10,888 | |||||
____________
(a) | Our Predecessors did not record revenues for intercompany trucking, terminalling, storage and short-haul pipeline transportation services. |
(b) | For a definition of EBITDA and distributable cash flow, see "Non-U.S. GAAP Financial Measures." |
(c) | Maintenance capital expenditures include expenditures required to maintain equipment, reliability, tankage and pipeline integrity and safety, and to address environmental regulations. |
Summary
Our net income for the three months ended March 31, 2012 ("2012 Quarter") increased $16.9 million to $9.1 million from a net loss of $7.8 million for the three months ended March 31, 2011 ("2011 Quarter"). The increase in net income was primarily due to an increase in revenues of $20.8 million to $27.1 million primarily attributable to the effect of the new commercial agreements with Tesoro. This increase was partially offset by:
• | an increase in operating and maintenance expenses of $1.2 million mainly related to higher contract hauler expenses and repairs and maintenance expenses; and |
• | an increase in general and administrative expenses of $2.0 million as a result of increased cost allocations of certain direct employee costs, additional expenses related to being a publicly traded partnership, expenses associated with TLLP unit-based compensation and the effect of omnibus agreement expenses. |
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Crude Oil Gathering Segment
The following table and discussion is an explanation of our results of operations of the Crude Oil Gathering segment for the three months ended March 31, 2012 and 2011 (in thousands, except barrel and per barrel amounts):
Three Months Ended March 31, | |||||||
2012 | 2011 | ||||||
REVENUES (a) | |||||||
Pipeline revenues | $ | 7,412 | $ | 5,587 | |||
Trucking revenues | 6,690 | — | |||||
Total Revenues | 14,102 | 5,587 | |||||
COSTS AND EXPENSES | |||||||
Operating and maintenance expenses | 6,844 | 4,715 | |||||
Depreciation and amortization expenses | 783 | 785 | |||||
General and administrative expenses | 711 | 154 | |||||
Total Costs and Expenses | 8,338 | 5,654 | |||||
CRUDE OIL GATHERING SEGMENT OPERATING INCOME (LOSS) | $ | 5,764 | $ | (67 | ) | ||
VOLUMES (bpd) | |||||||
Pipeline throughput (b) | 59,744 | 55,301 | |||||
Average pipeline revenue per barrel (c) | $ | 1.36 | $ | 1.12 | |||
Trucking volume | 25,364 | 21,628 | |||||
Average trucking revenue per barrel (a) (c) | $ | 2.90 | |||||
_____________
(a) | Our Predecessors did not record revenues for intercompany trucking, terminalling, storage and short-haul pipeline transportation services. Volumes for all periods presented include both affiliate and third-party throughput. |
(b) | Also includes barrels that were gathered and then delivered into our High Plains Pipeline by truck. |
(c) | Management uses average revenue per barrel and storage revenue per barrel on shell capacity to evaluate performance and compare profitability to other companies in the industry. There are a variety of ways to calculate average revenue per barrel; different companies may calculate it in different ways. We calculate average revenue per barrel as revenue divided by the number of days in the period divided by throughput (bpd). We calculate storage revenue per barrel on shell capacity as revenue divided by number of months in the period divided by shell capacity barrels. Investors and analysts use this financial measure to help analyze and compare companies in the industry on the basis of operating performance. This financial measure should not be considered as an alternative to segment operating income, revenues and operating expenses or any other measure of financial performance presented in accordance with U.S. GAAP. |
Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011
Volumes. Average pipeline and trucking throughputs increased 4,443 bpd, or 8%, and 3,736 bpd, or 17%, respectively, as a result of higher throughput volumes in the 2012 Quarter at Tesoro's North Dakota refinery.
Financial Results. Revenues increased $8.5 million to $14.1 million for the 2012 Quarter compared to $5.6 million in the 2011 Quarter primarily as a result of the trucking transportation services agreement with Tesoro that went into effect at the closing of the Offering. Historically, the TLLP Predecessor generally recognized only the costs and did not record revenue associated with trucking services provided to Tesoro on an intercompany basis. Accordingly, the revenues in the TLLP Predecessor's historical condensed combined financial statements relate only to amounts received from third parties and Tesoro with respect to transportation regulated by the FERC and the NDPSC on our High Plains system. In addition, pipeline revenues increased in the 2012 Quarter primarily due to an increase in pipeline volumes and higher committed rates that went into effect at the time of the Offering related to the 10-year pipeline transportation services agreement.
Segment operating income increased $5.8 million in the 2012 Quarter from an operating loss of $0.1 million in the 2011 Quarter driven by increased revenues. Operating and maintenance expenses increased $2.1 million, or 45%, to $6.8 million in the 2012 Quarter compared to $4.7 million in the 2011 Quarter predominantly attributable to an increase in contract hauler expenses due to higher rates and fuel surcharges for trucking services and an increase in repairs and maintenance expenses.
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Depreciation and amortization expenses were unchanged at $0.8 million for the 2012 Quarter compared to the 2011 Quarter as minor amounts of assets were placed in service or retired during or between the periods. General and administrative expenses increased $0.6 million to $0.7 million in the 2012 Quarter compared to the 2011 Quarter due to increased expenses for certain allocated employee related costs. The TLLP Predecessor general and administrative expenses included direct charges for the management and operation of our logistics assets and certain expenses allocated by Tesoro for general corporate services. Although Tesoro continues to charge the Partnership a similar combination of direct charges, the amounts allocated increased as a result of additional operational administrative resources utilized for management and growth of our assets.
Terminalling, Transportation and Storage Segment
The following table and discussion is an explanation of our results of operations of the Terminalling, Transportation and Storage segment, including the historical results of the Martinez Terminal, for the three months ended March 31, 2012 and 2011 (in thousands, except barrel and per barrel amounts):
Three Months Ended March 31, | |||||||
2012 | 2011 | ||||||
REVENUES (a) | |||||||
Terminalling revenues | $ | 10,126 | $ | 683 | |||
Short-haul pipeline transportation revenues | 1,518 | — | |||||
Storage revenues | 1,339 | — | |||||
Total Revenues | 12,983 | 683 | |||||
COSTS AND EXPENSES | |||||||
Operating and maintenance expenses | 4,401 | 5,312 | |||||
Depreciation and amortization expenses | 1,744 | 1,742 | |||||
General and administrative expenses | 557 | 158 | |||||
Loss on asset disposals | 236 | 25 | |||||
Total Costs and Expenses | 6,938 | 7,237 | |||||
TERMINALLING, TRANSPORTATION AND STORAGE SEGMENT OPERATING INCOME (LOSS) | $ | 6,045 | $ | (6,554 | ) | ||
VOLUMES (bpd) | |||||||
Terminalling throughput | 157,939 | 187,208 | |||||
Average terminalling revenue per barrel (a) (b) | $ | 0.70 | |||||
Short-haul pipeline transportation throughput | 65,670 | 62,173 | |||||
Average short-haul pipeline transportation revenue per barrel (a) (b) | $ | 0.25 | |||||
Storage capacity reserved (shell capacity barrels) | 878,000 | 878,000 | |||||
Storage revenue per barrel on shell capacity (per month) (a) (b) | $ | 0.51 | |||||
____________
(a) | Our Predecessors did not record revenues for intercompany trucking, terminalling, storage and short-haul pipeline transportation services. Volumes for all periods presented include both affiliate and third-party throughput. |
(b) Management uses average revenue per barrel and storage revenue per barrel on shell capacity to evaluate performance and compare profitability to other companies in the industry. There are a variety of ways to calculate average revenue per barrel; different companies may calculate it in different ways. We calculate average revenue per barrel as revenue divided by the number of days in the period divided by throughput (bpd). We calculate storage revenue per barrel on shell capacity as revenue divided by number of months in the period divided by shell capacity barrels. Investors and analysts use this financial measure to help analyze and compare companies in the industry on the basis of operating performance. This financial measure should not be considered as an alternative to segment operating income, revenues and operating expenses or any other measure of financial performance presented in accordance with U.S. GAAP.
9
Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011
Volumes. Terminalling throughput volumes decreased 29,269 bpd, or 16%, in the 2012 Quarter compared to the 2011 Quarter as a result of a scheduled turnaround at Tesoro's Martinez refinery in the 2012 Quarter. Short-haul pipeline transportation throughputs increased 3,497 bpd, or 6%, in the 2012 Quarter compared to the 2011 Quarter as a result of higher throughput volumes in the 2012 Quarter at Tesoro's Utah refinery.
Financial Results. Revenues increased $12.3 million to $13.0 million in the 2012 Quarter compared to $0.7 million in the 2011 Quarter primarily attributable to the new 10-year master terminalling services, 10-year SLC pipeline transportation services and 10-year SLC storage and transportation services agreements with Tesoro that went into effect at the time of the Offering. Historically, third-party throughput activity was the sole source of revenue for this segment as our Predecessors did not record revenue for intercompany trucking, terminalling, storage and short-haul pipeline transportation services. Accordingly, our Predecessors' revenues relate only to amounts received from third parties for these services.
Segment operating income increased $12.6 million to $6.0 million in the 2012 Quarter compared to an operating loss of $6.6 million in the 2011 Quarter primarily related to the differences in the way revenue is recorded by the Partnership as discussed above. In addition to the increase in revenue, operating and maintenance expenses decreased $0.9 million, or 17%, to $4.4 million in the 2012 Quarter from $5.3 million in the 2011 Quarter. The decline in operating and maintenance expenses mainly resulted from imbalance settlement gains attributable to the commercial terminalling services agreement with Tesoro that went into effect at the time of the Offering. In addition, operating and maintenance expenses decreased due to lower repairs and maintenance expenses in the 2012 Quarter compared to the 2011 Quarter. These were partially offset by the cost of purchased additives that had not previously been allocated to the Predecessors but are an operating expense for the Partnership subsequent to the Offering. The injection of these additives is considered an ancillary service provided by our terminals as outlined in our commercial agreements. The loss on asset disposals increased to $0.2 million in the 2012 Quarter due to losses recognized related to the retirement of certain assets at our Martinez Terminal.
Depreciation and amortization expenses remained flat at $1.7 million in the 2012 Quarter compared to the 2011 Quarter as the expense associated with assets placed in service offset the expense associated with assets retired during or between the periods. General and administrative expenses increased $0.4 million to $0.6 million in the 2012 Quarter compared to $0.2 million in the 2011 Quarter due to increased expenses for certain allocated employee related costs. Our Predecessors' general and administrative expenses included direct charges for the management and operation of our logistics assets and certain expenses allocated by Tesoro for general corporate services. Although Tesoro continues to charge the Partnership a similar combination of direct charges, the amounts allocated increased as a result of additional operational administrative resources utilized for management and growth of our assets.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership expects our ongoing sources of liquidity to include cash generated from operations, reimbursement by Tesoro for certain capital expenditures, borrowings under our Revolving Credit Facility, and issuances of additional debt and equity securities. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements, long-term capital expenditure requirements and minimum quarterly cash distributions.
On April 19, 2012, we declared a quarterly cash distribution, based on the results of the first quarter, totaling $11.8 million, or $0.3775 per unit, or $1.51 per unit on an annualized basis. This distribution was paid on May 14, 2012, to unitholders of record on May 4, 2012. On February 13, 2012, we paid a quarterly cash distribution totaling $11.3 million, or $0.3625, or $1.45 per unit on an annualized basis.
We intend to pay a quarterly distribution of at least $0.3375 per unit per quarter, which equates to $10.6 million per quarter, or $42.4 million per year, based on the number of common, subordinated and general partner units outstanding. We do not have a legal obligation to pay this distribution.
Historically, the Predecessors' sources of liquidity included cash generated from operations and funding from Tesoro. Cash receipts were deposited in Tesoro's bank accounts and all cash disbursements were made from those accounts. As such, historically, our Predecessors' financial statements have reflected no cash balances. The Partnership has bank accounts separate from Tesoro, but Tesoro provides treasury services on our general partner's behalf pursuant to the Amended Omnibus Agreement. Tesoro retained the working capital related to the TLLP Predecessor, as those asset and liability balances represented the TLLP Predecessor transactions.
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Revolving Credit Facility
Effective March 30, 2012, we amended the Revolving Credit Facility. Concurrent with the execution of the amendment, and pursuant to the terms of the original agreement, we exercised our option to increase the total loan availability from $150.0 million to an aggregate of $300.0 million. The amendment allows us to request that the availability be increased up to an aggregate of $450.0 million, subject to receiving increased commitments from the lenders, compared to the original agreement, which allowed an aggregate capacity of $300.0 million. The Revolving Credit Facility is non-recourse to Tesoro, except for Tesoro Logistics GP, LLC, our general partner, and is guaranteed by all of our subsidiaries and secured by substantially all of our assets. Borrowings available under the Revolving Credit Facility are up to the total available revolving capacity of the facility. We had $50.0 million of borrowings and $0.3 million in letters of credit outstanding under the Revolving Credit Facility, resulting in a total unused credit availability of $249.7 million or 83% of the borrowing capacity as of March 31, 2012. The Revolving Credit Facility is scheduled to mature on April 25, 2014.
Our Revolving Credit Facility, as of March 31, 2012, was subject to the following expenses and fees:
Credit Facility | 30 day Eurodollar (LIBOR) Rate | Eurodollar Margin | Base Rate | Base Rate Margin | Commitment Fee (unused portion) | |||||
TLLP Revolving Credit Facility (a) | 0.24% | 2.50% | 3.25% | 1.50% | 0.50% | |||||
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(a) We have the option to elect if the borrowings will bear interest at either a base rate plus the base rate margin, or a Eurodollar rate, for the applicable period, plus the Eurodollar margin at the time of the borrowing. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.
The Revolving Credit Facility contains affirmative and negative covenants that, among other things, limit or restrict the Partnership's ability (as well as the ability of our subsidiaries) to:
• | incur additional indebtedness and incur liens on assets to secure certain debt; |
• | make distributions from our subsidiaries; |
• | dispose of assets unless the proceeds from those sales are used to repay debt or are reinvested in our business; |
• | make certain amendments, modifications or supplements to organization documents and material contracts; |
• | engage in certain business activities; |
• | engage in certain mergers or consolidations and transfers of assets; and |
• | enter into transactions with affiliates. |
Additionally, covenants require TLLP to maintain certain interest coverage and leverage ratios. We submit compliance certifications to the bank quarterly, and we were in compliance with our debt covenants as of March 31, 2012.
On April 2, 2012, in connection with the Contribution, we borrowed an additional $68.0 million under the Revolving Credit Facility to fund a portion of the consideration for the Martinez Terminal. See additional discussion surrounding the Contribution in "Overview and Business Strategy."
Cash Flow Summary
Components of our cash flows are set forth below (in thousands):
Three Months Ended March 31, | |||||||
2012 | 2011 | ||||||
Cash Flows From (Used In): | |||||||
Operating Activities | $ | 13,327 | $ | (6,484 | ) | ||
Investing Activities | (2,496 | ) | (819 | ) | |||
Financing Activities | (8,142 | ) | 7,303 | ||||
Increase in Cash and Cash Equivalents | $ | 2,689 | $ | — | |||
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Operating Activities. Net cash from operating activities was $13.3 million for the 2012 Quarter compared to net cash used in operating activities of $6.5 million for the 2011 Quarter. The increase in net cash from operating activities was related to higher revenues as a result of our commercial agreements executed concurrent with and subsequent to the Offering. Average pipeline and trucking throughputs in our Crude Oil Gathering segment increased 4,443 bpd, or 8%, and 3,736 bpd, or 17%, respectively, as a result of higher throughput volumes in the 2012 Quarter at Tesoro's North Dakota refinery.
Investing Activities. Net cash used in investing activities for the 2012 Quarter increased $1.7 million to $2.5 million compared to $0.8 million in the 2011 Quarter related to higher capital expenditures in the 2012 Quarter including various expansion capital projects discussed below under "Capital Expenditures." The Sponsor reimbursement of $3.5 million included in cash from investing activities for the 2012 Quarter is the reimbursement for the gathering hub and pipeline project for the new Connolly station on our High Plains Pipeline.
Financing Activities. Net cash used in financing activities for the 2012 Quarter was $8.1 million compared to cash provided by financing activities of $7.3 million for the 2011 Quarter. In February 2012, we paid a quarterly cash distribution totaling $11.3 million, and we paid $0.5 million in financing costs during the 2012 Quarter related to the expansion of the Revolving Credit Facility, which will be amortized over the remaining life of the facility.
Historically, the Predecessors' sources of liquidity included cash generated from operations and funding from Tesoro. Cash receipts were deposited in Tesoro's bank accounts and all cash disbursements were made from those accounts. The Sponsor contribution of $3.3 million and $7.3 million included in cash from financing activities for the 2012 Quarter and 2011 Quarter, respectively, was the funding of the net loss of the Predecessors.
Capital Expenditures
The Partnership's operations are capital intensive, requiring investments to expand, upgrade or enhance existing operations as well as to maintain assets and ensure regulatory compliance. The cost estimates described below are subject to further review, analysis and permitting requirements and include estimates for capitalized interest and labor. Our capital requirements consist of maintenance and expansion capital expenditures. Maintenance capital expenditures include expenditures required to maintain equipment reliability and integrity and to address regulatory compliance. Expansion capital expenditures include expenditures to acquire or construct new assets and to expand existing facilities or services that may increase throughput capacity on our pipelines and in our terminals or increase storage capacity at our storage facilities. Tesoro reimburses us for projects covered under the Amended Omnibus Agreement, which provides for reimbursement of various projects in progress at the time the Partnership acquired the assets from Tesoro. In addition, Tesoro may reimburse us for projects that provide a greater economic benefit to Tesoro than the Partnership.
Capital spending during the three months ended March 31, 2012 and 2011 was $4.6 million and $0.7 million, respectively. For the remainder of 2012, we estimate that total capital expenditures will be approximately $61.5 million for both maintenance and expansion capital projects, which includes projects to expand our crude oil gathering capabilities and terminalling capacity. We anticipate that these capital expenditures will be funded primarily with cash generated from operations, reimbursement by Tesoro for certain capital expenditures and borrowings under our Revolving Credit Facility.
The following table is a summary of our capital expenditures for the three months ended March 31, 2012 and 2011, (in thousands):
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Maintenance | $ | 768 | $ | 253 | ||||
Expansion | 3,788 | 419 | ||||||
Total Capital Expenditures | $ | 4,556 | $ | 672 | ||||
Maintenance capital expenditures. Maintenance capital spending in the 2012 Quarter increased $0.5 million to $0.8 million compared to $0.3 million in 2011 primarily related to various projects at the Martinez Terminal. We estimate that our maintenance capital expenditures for the remainder of 2012 will be approximately $6.5 million for anticipated capital projects related to maintenance at certain of our terminals.
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Expansion capital expenditures. Expansion capital spending in the 2012 Quarter increased $3.4 million to $3.8 million compared to $0.4 million in the 2011 Quarter primarily related to 2012 expenditures for pipeline gathering projects, the establishment of a direct connection between Rangeland Energy, LLC's crude oil loading terminal and pipeline facility in North Dakota to our High Plains system and the gathering hub and pipeline project for the new Connolly station on our High Plains Pipeline. Amounts expended for the Connolly project are reimbursed to us by Tesoro. We estimate that our expansion capital expenditures for the remainder of 2012 will be approximately $55.0 million.
The following discussion describes our expansion capital spending plan, which is subject to further review and analysis and includes estimates for capitalized interest and labor costs:
Crude Oil Gathering Segment
Our overall strategy in the Bakken region is focused on growth projects that increase the utilization of our existing capacity, expand our pipeline gathering system, increase our pipeline capacity, add additional destinations from our pipeline system and lower our overall costs. Total expansion capital spending for the Crude Oil Gathering segment in the 2012 Quarter was $2.6 million, and we expect to spend approximately $30.0 million in the remainder of 2012.
Our growth plan for the remainder of 2012, in support of this strategy, is to invest approximately $28.5 million in projects that are expected to increase volumes delivered by the High Plains system by 50,000 bpd, which includes approximately $20.0 million on pipeline gathering projects. This incorporates increasing deliveries to Tesoro's North Dakota refinery and deliveries to new pipeline destinations. We spent $1.1 million on these projects in the 2012 Quarter, and we expect to complete these projects throughout 2012 and the first half of 2013.
Also, we plan to invest a total of approximately $3.0 million on additional truck unloading, tankage and pumping capacity on the High Plains system to support the 2011 announced expansion of Tesoro's North Dakota refinery of which $2.0 million was spent in 2011. We spent $0.5 million on these projects in the 2012 Quarter, and we expect to spend an additional estimated $0.5 million in the remainder of 2012 to complete these projects in the second quarter of 2012.
Further, Tesoro has announced a long-term agreement with Rangeland Energy, LLC for access to their crude oil loading terminal and pipeline facility in North Dakota including a direct connection to the Partnership's High Plains system. We spent $0.6 million in the 2012 Quarter, and we expect to spend approximately $0.5 million in the remainder of 2012. We expect the facility to be in service in the second quarter of 2012.
In support of our efforts to grow our pipeline gathering network on the High Plains system we are building a new gathering hub and an initial gathering pipeline at the Connolly station. The project, which is substantially complete, is expected to cost approximately $4.0 million in total, of which $3.0 million was spent in 2011. We spent $0.4 million in the 2012 Quarter and expect to spend approximately $0.5 million to fully complete the project in the second quarter of 2012. Amounts expended for the Connolly project are reimbursed to us by Tesoro.
Terminalling, Transportation and Storage Segment
We expect to grow terminalling volumes by approximately 25,000 bpd by year-end 2013 through capital investment designed to increase our throughput capacity. A project for waxy crude offloading, originally planned for 2013, with throughput of 20,000 bpd has been rescheduled for 2014 to coincide with maintenance downtime at Tesoro's SLC refinery. In the 2012 Quarter total expansion capital spend for the Terminalling, Transportation and Storage segment was $1.0 million, and we expect to spend a total of approximately $25.0 million in expansion capital throughout the remainder of 2012. Our growth plan includes estimated spending on projects in the remainder of 2012 including approximately $14.0 million of capital on new projects to expand the throughput capacity at several of our terminals including the Los Angeles, Vancouver and Mandan terminals, which are expected to be complete in late 2012 and early 2013.
Also, as part of the growth plan, we plan to invest a total of approximately $10.0 million on the Stockton terminal expansion, which will add storage capacity that will allow for an increase in volume delivered through the terminal. We spent $0.4 million in the 2012 Quarter, and we expect to spend approximately $9.5 million in the remainder of 2012 on this project, which is expected to be complete in the fourth quarter of 2012.
Additionally, we expect to spend approximately $2.5 million in future periods to upgrade the Los Angeles terminal to allow the offloading of transmix for transportation to Tesoro's Los Angeles refinery.
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We recently completed the addition of ethanol blending capabilities at our Burley terminal, and we spent $0.4 million on the project in the 2012 Quarter.
Environmental and Other Matters
Environmental Regulation. We are subject to extensive federal, state and local environmental laws and regulations. These laws, which change frequently, regulate the discharge of materials into the environment or otherwise relate to protection of the environment. Compliance with these laws and regulations may require us to remediate environmental damage from any discharge of petroleum or chemical substances from our facilities or require us to install additional pollution control equipment on our equipment and facilities. Our failure to comply with these or any other environmental or safety-related regulations could result in the assessment of administrative, civil, or criminal penalties, the imposition of investigatory and remedial liabilities, and the issuance of injunctions that may subject us to additional operational constraints.
Future expenditures may be required to comply with the federal, state and local environmental requirements for our various sites, including our storage facility, pipelines and refined products terminals. The impact of these legislative and regulatory developments, if enacted or adopted, could result in increased compliance costs and additional operating restrictions on our business, each of which could have an adverse impact on our financial position, results of operations and liquidity. Tesoro indemnifies us for certain of these costs as described in the Amended Omnibus Agreement.
Environmental Liabilities. Contamination resulting from spills of crude oil and refined products is not unusual within the petroleum refining, terminalling or pipeline industries. Historic spills along our pipelines, gathering systems and terminals as a result of past operations have resulted in contamination of the environment, including soils and groundwater. Site conditions, including soils and groundwater, are being evaluated at our properties where operations have resulted in releases of hydrocarbons and other wastes. A number of our properties have known hydrocarbon or other hazardous material contamination in soil and groundwater, particularly our Anchorage, Martinez and SLC terminals.
Tesoro has been party to various litigation and contingent loss matters, including environmental matters, arising in the ordinary course of business. The outcome of these matters cannot always be accurately predicted, but our Predecessors have recognized historical liabilities for these matters based on estimates and applicable accounting guidelines and principles. These liabilities were based on engineering estimates, expected timing, extent of remedial actions required by governing agencies and experience gained from similar sites for which environmental assessments or remediation have been completed. It is possible that the estimates will change and that remediation costs could be adjusted as more information becomes available.
The accrued liabilities of record at the time of the Offering and those related to the Martinez Terminal at the time of the Contribution are included in our Predecessors' combined financial statements. Liabilities were recorded when site restoration and environmental remediation and cleanup obligations were considered probable and could be reasonably estimated. Environmental liabilities of $3.4 million were accrued as of March 31, 2012 and December 31, 2011, for groundwater and soil remediation projects at our Martinez Terminal. The liabilities associated with the Martinez Terminal were retained by Tesoro at the closing of the Contribution.
As part of the Amended Omnibus Agreement, Tesoro, through certain of its subsidiaries, indemnifies us for certain environmental liabilities and title and tax matters associated with the ownership or operation of our assets and arising at or before the closing of the Offering on April 26, 2011 or the Contribution of the Martinez Terminal. Indemnification for unknown environmental and title liabilities is limited to pre-closing conditions identified prior to the earlier of April 26, 2016, and the date that Tesoro no longer controls our general partner (provided that, in any event, such date shall not be earlier than April 26, 2013). Under the Amended Omnibus Agreement the aggregate annual deductible for each type (unknown environmental liabilities or title matters) of liability was increased from $0.25 million to $0.4 million before we are entitled to indemnification in any calendar year.
Neither we nor our general partner has any contractual obligation to investigate or identify any such unknown environmental liabilities after the closing of the Offering on April 26, 2011. We have agreed to indemnify Tesoro for events and conditions associated with the ownership or operation of our assets that occur after the closing of the Offering and for environmental liabilities related to our assets to the extent Tesoro is not required to indemnify us for such liabilities.
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IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Form 8-K (including information incorporated by reference) includes and references "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, expectations regarding revenues, cash flows, capital expenditures and other financial items. These statements also relate to our business strategy, goals and expectations concerning our market position, future operations and profitability. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would" and similar terms and phrases to identify forward-looking statements in this Form 8-K, which speak only as of the date the statements were made.
Although we believe the assumptions upon which these forward-looking statements are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to:
• | changes in global economic conditions and the effects of the global economic downturn on Tesoro's business and the business of its suppliers, customers, business partners and credit lenders; |
• | the suspension, reduction or termination of Tesoro's obligation under our commercial agreements and our operational services agreement; |
• | a material decrease in Tesoro's profitability; |
• | a material decrease in the crude oil produced in the Bakken Shale/Williston Basin area; |
• | the risk of contract cancellation, non-renewal or failure to perform by Tesoro's customers, and Tesoro's inability to replace such contracts and/or customers; |
• | Tesoro's ability to remain in compliance with the terms of its outstanding indebtedness; |
• | the timing and extent of changes in commodity prices and demand for Tesoro's refined products; |
• | state and federal environmental, economic, health and safety, energy and other policies and regulations, including those related to climate change and any changes therein, and any legal or regulatory investigations, delays or other factors beyond our control; |
• | operational hazards inherent in refining operations and in transporting and storing crude oil and refined products; |
• | the availability and costs of crude oil, other refinery feedstocks and refined products; |
• | disruptions due to equipment interruption or failure at our facilities, Tesoro's facilities or third-party facilities on which Tesoro's business is dependent; |
• | changes in the cost or availability of third-party vessels, pipelines and other means of delivering and transporting crude oil, feedstocks and refined products; |
• | actions of customers and competitors; |
• | risks related to labor relations and workplace safety; |
• | earthquakes or other natural disasters affecting operations; |
• | weather conditions affecting our or Tesoro's operations or the areas in which Tesoro markets its refined products; |
• | adverse rulings, judgments, or settlements in litigation or other legal or tax matters, including unexpected environmental remediation costs in excess of any accruals, which affect us or Tesoro; |
• | changes in our cash flow from operations; |
• | changes in capital requirements or in execution of planned capital projects; |
• | direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war; |
• | political developments; |
• | seasonal variations in demand for refined products; and |
• | changes in insurance markets impacting costs and the level and types of coverage available. |
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Many of these factors, as well as other factors, are described in our filings with the SEC. All future written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the previous statements. The forward-looking statements in this Form 8-K speak only as of the date of this Form 8-K. We undertake no obligation to update any information contained herein or to publicly release the results of any revisions to any forward-looking statements that may be made to reflect events or circumstances that occur, or that we become aware of, after the date of this Form 8-K.
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