SAN ANTONIO – The latest strategic move by the new Andeavor, formerly Tesoro Corp., improves the company’s position for “organic growth programs and strategic acquisitions, including dropdowns,” its CEO said. Andeavor is merging Andeavor Logistics and Western Refining Logistics, its master limited partnerships (MLPs), and repositioning Andeavor Logistics through a buy-in of Andeavor Logistics’ incentive distribution rights (IDRs).

Tesoro closed on its acquisition in mid-November 2016 of Western Refining Inc. in a stock transaction valued at $4.1 billion. Western Refining’s retail operations included nearly 550 gas stations and c-stores under the Giant, Howdy’s and SuperAmerica brands.

Tesoro Corp. and Tesoro Logistics LP officially changed their names Aug. 1 to Andeavor and Andeavor Logistics LP.

Also in August, Andeavor acquired 39 convenience stores in California from Flyers Energy, Auburn, Calif.

El Paso, Texas-based Western Refining Logistics (WNRL) owns, operates, develops and acquires terminals, storage tanks, pipelines and other logistics assets related to the terminaling, transportation and storage of crude oil and refined products. Its assets include approximately 705 miles of pipelines, approximately 12.4 million barrels of active storage capacity, distribution of wholesale petroleum products and crude oil and asphalt trucking.

“Andeavor Logistics is well positioned for sustainable growth through the execution of our organic growth programs and strategic acquisitions, including dropdowns from Andeavor,” said Greg Goff, chairman and CEO of San Antonio-based Andeavor, and CEO of Andeavor Logistics’ and WNRL’s general partners. “The transactions announced today significantly improve the financial strength of Andeavor Logistics, reduce our cost of capital and clearly highlight the value of this growth business.”

Andeavor Logistics plans to spend at least $500 million to $600 million per year on organic growth and acquisitions with a current two-year backlog of $800 million to $900 million of identified organic growth projects.

Andeavor Logistics targets investing $400 million to $500 million per year on dropdowns; Andeavor has a dropdown portfolio of at least $750 million of estimated annual earnings. This portfolio includes earnings from refinery infrastructure of at least $150 million, logistics assets of at least $200 million, assets under development of at least $150 million and Andeavor’s wholesale fuels business of at least $250 million.

The transactions strengthen the credit profile and position Andeavor Logistics for an investment-grade credit rating. The IDR buy-in also lowers the marginal cost of capital and reduces the need to access public equity markets while expanding the universe of economic growth opportunities.

Together, these transactions simplify the corporate structure, the company said, resulting in Andeavor owning approximately 59% of Andeavor Logistics, valued at $6.1 billion.

The transactions represent an enterprise value of $1.8 billion, including the assumption of approximately $310 million of Western Refining Logistics’ net debt. The estimated 2018 EBITDA multiple is approximately 8.6x, excluding estimated 2018 general partner (GP)/IDR distributions for Western Refining Logistics of $22 million.

These transactions have been approved by the boards of all three companies as well as the conflicts committees of both MLPs. Andeavor said it expects the IDR buy-in to take place immediately after the merger. The companies said they expect the merger transaction and IDR buy-in to close in fourth-quarter 2017, subject to customary closing conditions, including regulatory and approval from holders of a majority of the Western Refining Logistics units.

Upon closing of the transaction, Goff will continue as chairman and CEO and Steven Sterin as president and CFO of the general partner of Andeavor Logistics.

Andeavor is an integrated marketing, logistics and refining company. Its retail-marketing system includes more than 3,100 gas stations and convenience stores marketing fuel under brands including Arco, SuperAmerica, Shell, Exxon, Mobil, Tesoro, USA Gasoline and Giant. It also has ownership in two logistics businesses, which include Andeavor Logistics LP and Western Refining Logistics LP and ownership of their general partners. Andeavor operates 10 refineries with a combined capacity of approximately 1.2 million barrels per day in the mid-continent and western United States.

Andeavor Logistics, also based in San Antonio, operates primarily in the mid-continent and western United States. It owns and operates a network of crude oil, refined products and natural gas pipelines. The company also owns and operates crude oil and refined products truck terminals, marine terminals and dedicated storage facilities. In addition, Andeavor Logistics owns and operates natural gas processing and fractionation complexes.