Tesoro-Pemex Clinch Fuel Transportation & Storage Agreement

Downstream operator Tesoro Corporation (NYSE:TSO) recently inked a three-year transportation and storage agreement with Mexico’s Pemex Logística.

Deal Highlights

A couple of months back, Tesoro won the Pemex auctions by offering the best tariffs for obtaining capacity on pipelines and storage terminal network. With this current deal, Tesoro will be entitled to use Pemex’s product pipelines and storage terminals and thereby will be allowed to supply transportation fuels in the Mexican states of Baja California and Sonora. Tesoro intends to integrate supply to Mexico with its West Coast Refining and Logistics system and sell gasoline and diesel in Mexico under its ARCO brand.

The strategic deal will help Tesoro to strengthen its geographical foothold in Mexico and provide further growth opportunities for its marketing business. The Pemex deal will enable Tesoro to link cities such as Mexicali, Rosarito, Ensenada, Guayamas, Hermosillo and Ciudad Obregon through pipelines. It also gives the refiner company, storage terminal space in Rosarito, Mexicali, Ensenada, Guaymas, Ciudad Obregón, Hermosillo, Magdalena, Nogales and Navojoa. The deal is likely to create additional shareholders value for the company.

This was the first open season for the Pemex auctions and has provided an opportunity to Tesoro to cash in on the growing demand of gasoline, diesel and other refined products in Mexico. Pemex is expected to hold a second auction for capacity on its network this year.

Mexico – An Attractive Offshore Prospect

Tesoro had been contemplating to expand its presence and enter the Mexico market for quite some time.

Energy reforms have transformed Mexico into one of the most attractive offshore prospects. In 2014, Mexican Congress passed landmark energy reforms to overhaul the country’s entrenched energy industry. The amendments opened private investment in the country by foreign investors, ending the monopoly of the country’s state owned behemoths Pemex and the power utility Comisión Federal de Electricidad.

Mexico is currently heavily reliant on the U.S. for its energy supplies importing over 60% of its refined fuels from the country, thus providing huge market for refiners like Marathon Petroleum (NYSE:MPC) and Valero Energy Corporation (NYSE:VLO) . Mexico’s demands for such products have not only helped to allay the energy glut in the U.S. markets but have also enhanced the earnings margins of the U.S. firms.

Zacks Rank

Headquartered in San Antonio, TX, Tesoro is an independent refiner and marketer of refined petroleum products in the western U.S. The company operates in three segments: refining, marketing and logistics through Tesoro’s master limited partnership, Tesoro Logistics LP (NYSE:TLLP) . Tesoro, under the Zacks categorized Oil and Gas - Refining and Marketing industry, currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tesoro Corporation Price

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