Two years after first rolling out plans to build a pipeline from the Permian Basin to the Houston Gulf Coast, Occidental Petroleum Corp. (NYSE: OXY) abruptly cashed out Nov. 6 for $1.15 billion in two related deals.
The deal comes roughly a month since the pipeline began commercial operations.
Oxy, based in Houston, said it agreed to sell its 50% interest in BridgeTex Pipeline Co. LLC to Plains All American Pipeline LP (NYSE: PAA) and Plains GP Holdings LP (PAGP) for $1.075 billion. The 400-mile northern leg of the line runs from the Permian to East Houston.
Oxy is also selling interest in the 40-mile, 24-inch southern leg of the pipeline to Magellan Midstream Partners LP (NYSE: MMP) for $75 million. That line runs from Houston to Texas City, Texas.
BridgeTex, a company jointly owned by Oxy and Magellan, owns the 300,000 barrel-per-day (bbl/d) crude oil pipeline extending from the Permian Basin to the Houston Gulf Coast area.
"This sale allows us to monetize this important pipeline while retaining long-term cost-advantaged shipping commitments on BridgeTex to ensure access to the key Houston refining markets," said Stephen Chazen, Oxy president and CEO. “This is in line with our previously announced strategic review to streamline our business, reinvest in areas where we have depth and scale and maximize total return to shareholders.”
Michael Mears, Magellan’s CEO, said the acquisition further solidifies its position as the premiere system to deliver crude oil to the Houston Gulf Coast area.
"Magellan's comprehensive Houston distribution network will have the capability to access all domestic inbound crude production and deliver crude oil to all refineries in Houston and Texas City as well as to refineries throughout the Gulf Coast via third-party pipelines," he said.
The BridgeTex pipeline began operations in September. The 450-mile pipeline has a capacity to transport about 300,000 bbl/d of crude oil between the Permian region, from Colorado City, Texas, and Gulf Coast refinery markets.
With the start-up of the BridgeTex pipeline, Oxy expected to capture a portion of the spread between LLS and WTI Midland oil prices on about 200,000 bbl/d transported to the Gulf Coast.
Annualized EBITDA from Oxy's share of the line was expected to be about $100 million. With development costs, the sales price translates to 10.8 times cash flow, said Bill Herbert, managing director and co-head of securities for Simmons & Co. International.
“This was an unexpected and positive announcement as Oxy continues to streamline its portfolio,” he said. “A significant amount of cash is set to come in the door.”
The company is spinning off its California assets for an associated $6 billion dividend.
In the United Arab Emirates, the company is likely to deal 30% of its interest in the Al Hosn Gas Project, which is developing one of the largest natural gas fields in the Middle East. Oxy could sell a 30% stake in the project, which would be worth $3 billion.
Chazen said in an Oct. 23 conference call that the spinoff of its California subsidiary and other asset sales would largely be used to repurchase shares.
Oxy performed solidly in the third quarter of 2014. Despite an earnings miss, Occidental's Permian production grew 26% compared to a year ago.
Magellan's acquisition is contingent on Oxy successfully completing its sale to Plains. Law firm Baker Botts represented Oxy in the deal.
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