IPO Report: Western Refining Logistics, LP (WNRL)

Francis Gaskins |

Western Refining Logistics, LP (WNRL) is a mid-stream and storage (terminals, tanks, pipelines) limited partnership formed by Western (WNR), which has a market capitalization of $2.55 billion.  WNR is focused on the Delaware Basin in the Permian Basin area of West Texas and southern New Mexico and in the Four Corners area in northwestern New Mexico.

Six other IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

WNRL is based in El Paso, TX, and scheduled a $250 million IPO with a market capitalization of $916 milli0n at a price range mid-point of $20, for Thursday October 10, 2013.

The S-1 was filed October 2, 2013.  Manager, Joint Managers:  BofA Merrill L; Barclays; Goldman;  Wells Fargo. Co Managers:  Credit Suisse; Deutsche ; UBS ; Credit Agricole CIB; SunTrust Robinson, BofA Merrill;  Barclays;  Goldman; Wells Fargo

Summary

WNRL is a mid-stream and storage (terminals, tanks, pipelines) limited partnership formed by Western (WNR), which has a market capitalization of $2.55 billion.  WNR is focused on the Delaware Basin in the Permian Basin area of West Texas and southern New Mexico and in the Four Corners area in northwestern New Mexico.

Valuation

The most comparable recent IPO is Phillips 66 Partners (PSXP), formed by its parent Phillips 66 (PSX), which has a market cap of $36 billion.  PSXP’s IPO initial price range mid-point was $20 and the projected yield was 4.25%.   

PSXP IPO’d  July 22, 2013 at $23, traded as high as $35.95 and recently traded at $29.67, to yield 2.86%

The yield gap between PSXP and its parent narrowed.  It is likely the same thing will happen regarding WNRL and its parent WNR, see the comparison below.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Min yield

% offered

12 months ended 6/13

Cap (mm)

Sls

Erngs

BkVlue

 

in IPO

Western Refining Logistics, LP (WNRL)

$912

4.5

15.2

4.8

4.6%

27%

Western (WNR) parent

$2,450

0.3

5.5

2.7

2.4%

 

 

 

 

 

 

 

 

COMPARE with parent

Mrkt

Price /

Price /

Price/

Dividend

 

12 months ended 6/13

Cap (mm)

Sls

Erngs

BkVlue

Yield

 

Phillips 66 Partners LP (PSXP)

$2,070

18.6

23.2

3.4

2.80%

 

Phillips 66 (PSX)

$36,160

0.2

6.4

1.7

2.17%

 


Glossary

Conclusion

As discussed above, It is highly likely that post IPO the market will reduced the yield gap between WNRL and WNR, just as it did for PSX and PSXP.  The rating on WNRL is buy on the IPO.

Business

WNRL is a fee-based, growth oriented Delaware limited partnership recently formed by Western (WNR) to own, operate, develop, and acquire terminals, storage tanks, pipelines, and other logistics assets.  WNR has a market capitalization of $2.55 billion.

Initial assets consist of pipeline and gathering assets and terminalling, transportation, and storage assets in the Southwestern portion of the U.S., including approximately 300 miles of pipelines and approximately 7.9 million barrels of active storage capacity, as well as other assets.

Most of the assets are integral to the operations of Western’s El Paso and Gallup Refineries and include the following:

Pipeline and Gathering Assets.
Pipeline and gathering assets consist of 300 miles of crude oil pipelines and gathering systems and 566,000 barrels of active crude oil storage located primarily in the Delaware Basin in the Permian Basin area of West Texas and southern New Mexico and in the Four Corners area in northwestern New Mexico. These assets serve as a key source of high quality, cost-advantaged crude oil for Western’s El Paso and Gallup Refineries.

Terminalling, Transportation, and Storage Assets.
Terminalling, transportation, and storage assets consist of terminals and storage assets located on site at each of Western’s El Paso and Gallup Refineries, and standalone refined products terminals located in Bloomfield and Albuquerque, New Mexico.

These assets include 6.9 million barrels of active shell storage capacity. These assets primarily receive, store, and distribute crude oil, feedstock, and refined products for Western’s refineries.

WNRL also provides fee-based asphalt terminalling and processing services at an asphalt plant and terminal in El Paso and asphalt terminalling services at three stand-alone asphalt terminals located in Albuquerque, New Mexico and Phoenix and Tucson, Arizona, which have a combined storage capacity of 473,000 barrels.

How WNRL Generates Revenue

WNRL generates revenue primarily by charging fees and tariffs for transporting crude oil and refined and other products through terminals and pipelines and for providing storage at storage tanks and terminals.

Minimum distribution

WNRL plans a minimum quarterly distribution of $0.2875 per unit for each complete quarter, or $1.15 per unit on an annualized basis, which is an annual distribution rate of 4.6% at the price range mid-point of $20.

Growth plan

WNRL’s intends to expand the business primarily by increasing utilization of existing systems, acquiring additional logistics assets from Western and third parties and executing organic growth projects.

The Permian Basin in general, and the Delaware Basin in particular, are experiencing significant crude oil production growth as a result of improved drilling and completion techniques.

This production growth provides the El Paso Refinery with a local supply of high quality, cost-advantaged crude oil. Western has stated that it intends to increase its access to this production and grow its logistics business generally, and has formed WMRL to be the primary growth vehicle for this business.

Western will grant WNRL a right of first offer on certain logistics assets that it will retain following the completion of this IPO, as well as on additional assets that Western may acquire or construct in WNRL’s  existing areas of operation in the future. Competition

Competition

As a result of WNRL’s contractual relationship with Western under the commercial agreements and WNRL’s direct connections to Western’s refineries, WNRL believes that ite will not face significant competition from other pipelines, terminals, and storage facilities for Western’s crude oil or refined petroleum products transportation requirements to and from the refineries WNRL supports with respect to the services provided by WNRL’s initial assets

Use of proceeds

WNRL expects to net $231 million from its IPO.  Proceeds are allocated as follows:

Retain $50 million for general partnership purposes;

Ppay $1.8 million in estimated debt issuance costs related to the revolving credit facility; and

Distribute the balance Western in partial consideration of its contribution of assets in connection with the IPO.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
WNRL Western Refining Logistics LP representing limited 20.40 -0.65 -3.09 193,203
WNR Western Refining Inc. Inc. 39.26 -0.24 -0.61 3,092,409
IMTEF Royal Imtech N.V. 0.01 0.00 0.00 0

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