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Tesoro closes on Alaska acquisitions Consent decree with state requires company to sell existing Anchorage petroleum fuel terminal to address competitiveness issue KRISTEN NELSON Petroleum News
Tesoro and the state of Alaska have reached an agreement allowing the company to go ahead with the purchase of Flint Hills Resources’ wholesale and logistics assets in Anchorage and Fairbanks, subject to Tesoro selling one of its existing terminals in Anchorage.
Tesoro Corp. said June 20 that the acquisitions, made through the company’s affiliates Tesoro Alaska Co. LLC and Tesoro Alaska Terminals LLC., include: Flint Hills wholesale fuel marketing contracts in Alaska; an Anchorage terminal with 580,000 barrels of in-service storage capacity, a truck rack and rail loading capacity; a Fairbanks airport terminal with 22,500 barrels of in-service jet fuel storage and truck rack; and a multiyear terminalling agreement at Flint Hills’ North Pole refinery providing rail offload capabilities and access to Alaska’s Interior.
The former Flint Hills North Pole refinery is not part of this acquisition, which was announced in late 2015.
Agreement reached The state said June 21 that Alaska Attorney General Craig Richards reached an agreement with Tesoro requiring the company to sell a petroleum fuel terminal at the Port of Anchorage to preserve competition in Alaska’s fuel markets. In addition to the 580,000-barrel capacity former Flint Hills Anchorage terminal it is acquiring, Tesoro owns two storage facilities at the port, Terminal 1 with 220,000 barrels of capacity and Terminal 2 with some 600,000 barrels of capacity.
The Department of Law conducted a six month investigation and determined that Tesoro’s acquisition of Flint Hills’ tank farm would limit the ability of competitors to import fuel through the port and impair competition in some fuel markets, including gasoline.
Tesoro agreed to sell Terminal 1 to a qualified buyer to address the competitiveness concern.
“Allowing a new competitor into the Port of Anchorage will increase competition in this very constrained market,” said Chief Assistant Attorney General Ed Sniffen in a statement.
Tesoro has one year from approval of the consent decree to sell the terminal and must lease it if it cannot find a buyer.
The consent decree was filed June 21 with the Alaska Superior Court and is subject to the court’s approval; there is a 60-day period for public comments on the consent decree.
Tesoro’s view “This acquisition enhances our capabilities to efficiently and reliably serve our customers in the state of Alaska,” Greg Goff, Tesoro president and CEO, said in a statement.
Tesoro said that to complete the Flint Hills acquisition in a timely manner it has agreed with Alaska’s attorney general to offer for divestment approximately 25 percent of its existing Tesoro Logistics Anchorage product terminal capacity (some 830,000 barrels in total).
The company said the rail loading capabilities it gains through the acquisition will improve its ability to serve customers in the Interior from Anchorage. Tesoro said it plans to offer the acquired assets to the master limited partnership, Tesoro Logistics LP, in the near future.
The consent decree The consent decree notes that Tesoro Logistics owns two petroleum products storage facilities at the Port of Anchorage; a petroleum products terminal facility at Nikiski, adjacent to Tesoro’s Kenai refinery; and the 69-mile Tesoro Alaska Pipeline, which moves petroleum products between the Nikiski terminal and Kenai refinery and the Port of Anchorage.
As to the acquisition, Tesoro asserts it will “support the economic utilization and overall health of the Kenai refinery” and “provide a reliable and secure source of petroleum product supply” to Interior Alaska markets using the rail loading capabilities of the Flint Hills Anchorage terminal.
Tesoro also asserts that the acquisition “does not alter the supply options for petroleum products in Alaska” because since Flint Hills shut down operation of the North Pole refinery in 2014 that company has not imported any petroleum products from outside Alaska, but has purchased products from Tesoro, a purchase it is contractually committed to continue for the next eight years. Flint Hills has also, the consent decree notes, operated its Anchorage terminal “on a proprietary basis.”
The state, on the other hand, asserts that Tesoro’s acquisition of the Flint Hills facilities “will alter supply options for the purchase and delivery of petroleum products in Alaska by removing a competitor from the market and eliminating a potential source of imported supply of petroleum products” and “may be unlawful under Alaska and federal antitrust law by substantially reducing competition.”
The consent decree notes that the court has made no determination of any violation of the law and defendants continue to deny that the transaction is unlawful. Both the state and the defendants “wish to avoid litigation and resolve the potential controversy on mutually acceptable terms.”
Qualified third parties Tesoro has one year to divest Tesoro Terminal 1 assets to a qualified third party for no less than the minimum reserve price Tesoro provided to the state in response to an investigative demand based on the fair market value of the terminal and to a party that receives the prior approval of the attorney general.
The consent decree lists qualified third parties and says they must be “creditworthy customers as reasonably determined” by Tesoro “who agree to follow industry standard practices related to health, safety, security, and environmental protection.”
The consent decree lists companies which are “actual or potential competitors of Tesoro” who will be deemed qualified third parties if they satisfy state financial responsibility requirements: Delta Western Inc., Crowley Petroleum Distribution, Petro Star Inc., Petro Marine Services, Petro 49 Inc., Shoreside Petroleum, Chevron Products Co., Shell Oil Products US and Erickson Petroleum Corp.
The consent decree has an initial term of 10 years.
If Tesoro is unable to close a deal to divest Tesoro Terminal 1 assets within a year, it may apply to the attorney general for additional time to close the transaction.
If it is unable to divest Tesoro Terminal 1 at the minimum reserve price and subject to approval of the attorney general, Tesoro would then lease the storage capacity of the terminal, for no more than 10 years, to a qualified third party, or to multiple qualified third parties if no single party is interested in leasing the entire storage capacity.
If Tesoro is unable to divest or lease the terminal, it would then offer “terminalling, storage, and ancillary services” at the terminal “on a non-discriminatory basis” to qualified third parties.
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