Refinery logistics MLPs had their day while their refiner sponsors were minting money. The “day” encompassed several good years ending in late 2015, and while it lasted there seemed to be no limit to what investors might pay for the associated pipelines and terminals, so long as they were repackaged as income plays and insulated from the volatile fuel margins.

But then the prices at the pump caught up to the decline in crude, organic expansion projects dwindled and it turned out that not only was there a limit to the market’s largesse, but that limit was downwardly mobile.

Before the pendulum swung the other way, some refinery logistics MLPs had already begun hedging their bets by diversifying into gathering and processing. Tesoro Logistics (NYSE: TLLP) was a pioneer on that score, spending $2.5 billion in 2014 to acquire a gas gatherer and processor.

Traditional refinery logistics are expected to account for just over half of TLLP’s profit stream next year, with gathering and processing supplying the rest. That’s in the wake of the partnership’s latest midstream acquisition, announced Monday. Tesoro Logistics will spend $700 million early next year to buy North Dakota gathering infrastructure, including two gas processing plants, from a group led by Whiting Petroleum (NYSE: WLL). It’s paying around 7 times annual EBITDA, a relatively attractive multiple for a largely fee-based business expected to grow modestly even if low energy prices persist for the next couple of years.

Separately, TLLP is spending $400 million (much of it already raised) to acquire a Bay Area marine terminal and storage facilities from its sponsor Tesoro (NYSE: TSO). It’s paying 8-9 times EBITDA for this more reliable income stream.

In the wake of those deals, TLLP’s distribution — currently yielding 7.6% — is forecast to increase  12-15% next year. The latest transactions should bolster the already solid distribution coverage, at 1.11x year-to-date.

Source: Tesoro Logistics

Tesoro Logistics has benefited from the strong market position of its sponsor.  Tesoro is the leading refiner across the geographically isolated U.S. West, where record fuel demand has been growing even faster than it has been nationwide. The higher yield reflects concerns about the growing drag from Tesoro’s incentive distribution rights, and a restructuring of these is already under consideration.

I like the partnership’s solid distribution and leverage metrics and love the yield relative to the resilience of the underlying cash flow stream. We’re adding Tesoro Logistics to the Growth Portfolio. Buy TLLP below $55.

Meanwhile, Tesoro’s announcement last week of the $6.4 billion Western Refining (NYSE: WNR) acquisition has weighed on the price of that refiner’s sponsored MLP, Western Refining Logistics (NYSE: WNRL).

That’s typical for an affiliate of an acquired company, as limited partners worry that the acquirer might neglect or mistreat them. Such fears are rarely justified: acquirers tend to want to wrap up any loose ends, which often means eventually acquiring their quarry’s MLP at a modest markup.

That’s likely to be the case here too, and WNRL’s logistics assets, along with its wholesale fuel distribution operations, are likely to eventually find a new home at TLLP, boosting that partnership’s distribution coverage in the process.

In the meantime, Western Refining Logistics units yield a fully covered 8.4%. While we won’t be adding WNRL to our portfolio at this stage, it’s an investment as solid as TLLP. I expect the two to merge eventually on terms fair to WNRL’s limited partners.