The $2.4 billion Phillips 66 dropdown appears to be a win-win.
Phillips 66 Partners LP made its biggest purchase ever in the third quarter, and kept the deal in the family.
The $2.4 billion dropdown from Phillips 66 Co. included a 25% interest in the Bakken Pipeline, which consists of the Dakota Access and Energy Transfer Crude Oil pipelines. It also included a 100% interest in the Merey Sweeny LP coke processing unit at the Phillips 66 Sweeny refinery in Old Ocean, Texas, near Houston.
Phillips is intent on helping its MLP to deliver 30% compound annual growth in shareholder distributions through 2018, Motley Fool said. Prior to this latest dropdown, the rate was at 33% via dropdowns and other transactions.
The latest deal is expected to generate about $270 million in EBITDA on its own in 2018. At the end of the recent second quarter, EBITDA was about $680 million, so the company’s goal of $1.1 billion in adjusted EBITDA by year-end 2018 seems doable.
But Motley Fool does not see acquisitions as necessary to push the MLP over the line. Three expansion projects underway (Sand Hills NGL Pipeline with DCP Midstream LLC; Bayou Bridge Pipeline with Energy Transfer Partners; and the STACK Pipeline with Plains All American Pipeline) are seen as providing the incremental income necessary.
Phillips 66, meanwhile, saw its stock jump 8.5% in September as it showed investors its ability to recover swiftly from damage wrought by Hurricane Harvey, and the balance sheet bonus it achieved in the dropdown. Phillips will gain about $1.5 billion in cash and $240 million in Phillips 66 Partners units, while shifting about $625 million in debt to the MLP.
The MLP will fund the acquisition through the sale of units to Phillips 66, as well as through debt and proceeds from a private placement of equity units.
Joseph Markman can be reached at jmarkman@hartenergy.com or 713-260-5208.
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