Phillip M. Anderson is president of Tesoro Logistics LP, the midstream MLP of San Antonio-based Tesoro Corp., one of the largest independent downstream operators in the U.S. The company operates six refineries and a major wholesale and retail marketing presence in the upper Midwest, west of the Rockies and Alaska. Organized in 2011, Tesoro Logistics has grown into a multifaceted service provider with more than 3,500 miles of crude oil, refined products and natural gas pipelines and 29 crude and refined product truck and marine terminals, which have over 15 million barrels of storage capacity. Also, it owns and operates four natural gas processing complexes and one fractionation plant.

Anderson visited with Midstream Business to discuss the partnership’s rapid growth and his vision for its future.

MIDSTREAM BUSINESS Your career with the Tesoro organization spans nearly 20 years. How has the company changed in that time?
ANDERSON It’s been an incredible journey over the years as the company has grown and our strategy has changed. When I joined Tesoro back in 1998, we were in the beginning of our transition from a micro-integrated company—with an Alaska refining and marketing business paired with South Texas and Bolivian gas E&P businesses—to becoming one of the largest independent refining, marketing and logistics companies in the U.S. I’ve been involved in the company’s strategy all along and witnessed a lot of change that continues to this day. Our approach has been to stay flexible and open to thinking about our business differently.

My present role started about six years ago when we saw the opportunity to create a focused logistics business and drive a significant growth strategy for Tesoro. From the beginning, we set out to focus on businesses that fit well into our core refining and marketing activities. As a major consumer of crude oil and natural gas, as well as marketer of refined products, we had a lot of existing potential that we’ve been able to realize over the years.

I remain really excited about the changes that we continue to make in our business and the opportunities in front of us. We’ve taken a very internally-focused organization and grown it substantially to also focus on our third-party customers to create a platform for the future. Our goal is to have at least half of Tesoro Logistics’ revenue come from third parties. We are focused on our customers and how we can help them—just like we help Tesoro—get their products to market more efficiently. We’re well on way there, but a lot of opportunity remains to improve and capture new business.

MIDSTREAM BUSINESS Tesoro Logistics has a major role in linking Bakken producers with your parent’s Mandan, N.D., refinery. How is the Williston Basin changing, from a midstream perspective, as drilling has declined?
ANDERSON We’re seeing a significant shift in the business up there with now-declining production, as well as the expected entry of major new takeaway pipelines. Our system has always been dedicated to aggregating crude oil and bringing it to multiple market hubs.

We continue to be supported by Tesoro’s strong demand for Bakken crude at the Mandan refinery and at various rail locations. With that foundation, we’ve expanded to capture new gathering opportunities as our infrastructure continues to build out to individual well locations.

MIDSTREAM BUSINESS Tesoro Logistics’ assets are focused on the West Coast. How does that region differ from the midstream network east of the Rockies?
ANDERSON The western U.S. is unique to the extent that there are very few interconnected, core crude oil and product pipelines and a reliance on marine assets to move products between key market hubs. One of our key drivers over the years has been the ability to grow our logistics capabilities organically to serve enhanced access across our footprint.

MIDSTREAM BUSINESS Your parent is the largest refiner and marketer in Alaska—truly a unique market. What special challenges does Alaska offer a midstream operator?
ANDERSON Alaska is a very unique place to be a logistics operator. We contend with significant swings in seasonal demand and sometimes difficult weather conditions. The key to being successful is to be extremely reliable across the distribution chain to keep product available across Alaska. We’ve been there a long time and we think we’re pretty good at it.

MIDSTREAM BUSINESS California has a reputation for being difficult from a regulatory perspective. Is that an impediment to your operations in the state?
ANDERSON No, we believe that the West Coast market is extremely attractive. The economy and the market on the West Coast is strong and we are in a unique position with our integrated assets—from crude acquisition to logistics to retail marketing—to further optimize our entire West Coast system.

We see the ever-changing regulatory environment in California as indicative of changing customer preferences for renewable fuels. We are listening and working toward delivering what they want.

MIDSTREAM BUSINESS What are the prospects for further dropdowns from your parent and when might they occur?
ANDERSON Tesoro Logistics has a strong portfolio of future acquisition possibilities from Tesoro. We are methodical in our approach and focused on capturing new opportunities in the business. Even with the dropdowns we’ve had over the past five years, the vast majority of those assets represented new business within Tesoro. It’s a key facet of Tesoro’s integrated strategy to drive growth within the logistics business and capture value across the entire value chain.

MIDSTREAM BUSINESS Do you expect M&A activity to remain brisk this year and do you see Tesoro Logistics as a player?
ANDERSON Right now, there are certainly a lot of challenges to M&A in the marketplace but we are always looking for new opportunities that fit our strategic profile and geography. In fact, most recently, Tesoro acquired assets from Great Northern Midstream in the Bakken.

With these acquisitions, we’re able to capture the value across the Tesoro system and then they become great drop-down opportunities for Tesoro Logistics.

MIDSTREAM BUSINESS Tesoro’s Anacortes, Wash., refinery is a major purchaser of Bakken crude, which moves west by rail. How has that changed the logistics of supplying a refinery that has relied primarily on Alaska North Slope (ANS) for its feedstock?
ANDERSON Tesoro’s Anacortes refinery has historically relied on a steady mix of Alaskan and Canadian crude oil supplemented by imported barrels from all over the world. The Bakken barrel works really well with the configuration of that refinery and produces a better slate of products than ANS. A large portion of the refinery diet is now made up of Bakken and it gives them some additional flexibility to fill out the remaining slate that still consists of a lot of Canadian and ANS crude.

MIDSTREAM BUSINESS What trends do you see on the petroleum product side of the midstream?
ANDERSON In our western U.S. geography, we’re dealing with two key trends: demand growth and renewable fuel mandates. Recently, we’ve seen a return to demand growth after several years of flat or declining demand. The economies of the West Coast and especially California have improved and vehicle miles traveled has grown, and is driving volume growth at our product terminals.

We’re also spending a lot of time working with our customers to improve our capabilities to support renewable fuel mandates. That drives changes within our terminals, some new organic growth projects and higher service revenues within our system.

MIDSTREAM BUSINESS Is there a market for U.S. petroleum product exports on the Pacific Rim?
ANDERSON We have seen a fairly rapid growth of product exports moving through our marine terminals across the West Coast. The key driver has been demand growth in Central and South America being served by West Coast refiners.

We do see product exports moving further east on a fairly regular basis, but the big growth has been on product moving south. Right now, Tesoro is working on a project to produce mixed xylenes at its Anacortes refinery that would be exported to Asia. That project has a significant logistics-driven scope and we’re excited about the opportunities it could bring for Tesoro Logistics.

MIDSTREAM BUSINESS It’s a tough business climate right now for all MLPs. Do you expect your distribution growth to continue?

ANDERSON We certainly would like that to be the case. For us, we’ve got ample opportunities to grow the business, including acquisitions from third parties and dropdowns from Tesoro. We’re looking more at capital markets availability as the key driver for maintaining our growth.

MIDSTREAM BUSINESS Crude and product prices are ticking up. Do you have any personal hunches on when commodity prices will rebound to more typical levels?
ANDERSON You know, I’ve always said if I was any good at that, I’d be on my private island. We do see robust demand growth across—not just our business—but across the globe. Eventually, the market needs to find a price level that supports the right level of production to meet demand—and that’s probably above today’s price. But, I’ve given up trying to guess when that’s going to happen.

MIDSTREAM BUSINESS What do you see in the near future for the midstream and downstream?
ANDERSON I just want to say that I am excited about the future. We have come a long way and with our proven track record of forward thinking, growth and ability to seize opportunity when it presents itself, we are well poised for the future.

Paul Hart can be reached at pdhart@hartenergy.com and 713-260-6427.