Acquisition of Equity Interests from BP

Source Press Release
Company BP Midstream Partners LPBP Plc. 
Tags Corporate Deals, Deals, Refining & Marketing Activities, Pipelines/ tankers/ distribution
Date October 02, 2018
  • Transaction immediately accretive to distributable cash flow per unit
  • Organic growth from portfolio post transaction sufficient to deliver mid-teens distribution growth through 2019
  • High quality assets with stable, predictable cash flows and growth opportunities
  • Enhances portfolio diversification, balancing offshore and onshore cash flows
  • Increased 2018 full year cash available for distribution guidance to $140 – $145 million
  • Management intends to recommend to the Board of Directors of the general partner of BPMP an increased third quarter 2018 distribution

BP Midstream Partners LP (“BP Midstream,” “BPMP” or the “Partnership”) today announced that it has acquired equity interests in Mardi Gras Transportation System Company LLC (“Mardi Gras”), URSA Oil Pipeline Company LLC (“Ursa”) and KM-Phoenix Holdings LLC (“KM-Phoenix”) (collectively the “Dropdown Assets”) from indirect wholly-owned subsidiaries of BP p.l.c. (LON: BP; NYSE: BP) (“the Parent”) for $468 million in cash (the “Acquisition”). The Acquisition was funded using the Partnership’s existing revolving debt facility.

Commenting on the Acquisition, Rip Zinsmeister, Chief Executive Officer of the general partner of BPMP, said, “We are pleased to announce the signing of our first dropdown acquisition since the Partnership's initial public offering. This acquisition demonstrates our commitment to deliver unit holders consistent, top-tier distribution growth. We expect the high quality of the assets that have been acquired to allow us to generate mid-teens distribution growth within our stated coverage ratio range through 2019. "

Summary of Acquired Assets

The acquisition will increase BP Midstream’s interest in Mardi Gras from 20% to 65%. In addition, BP Midstream will acquire BP’s 22.6916% interest in Ursa and its 25% interest in KM-Phoenix. BP will retain the remaining 35% interest in Mardi Gras. Each of these assets is described in more detail below.

Mardi Gras

Mardi Gras holds four joint venture interests in four pipelines (Caesar, Cleopatra, Proteus and Endymion) that serve large offshore upstream developments in the prolific Green Canyon and Mississippi Canyon regions of the Gulf of Mexico. Revenues generated from the assets are supported by fee-based, life-of-lease agreements with BP affiliates and other well-established producers. The pipelines are operated by an affiliate of Royal Dutch Shell plc (“Shell”). The pipelines have pre-invested capacity, providing growth opportunities with nominal capital investment by the Partnership.

Caesar and Cleopatra deliver crude and natural gas, respectively, from the Southern Green Canyon area to commoncarrier pipelines, for transportation to Gulf Coast refining and processing markets. Both pipelines are also expected to transport future volumes from BP’s Atlantis Phase 3 project (scheduled for start-up in 2020) and Mad Dog 2 project (scheduled for start-up in 2021).

Proteus and Endymion are crude pipelines that provide takeaway capacity from the BP-operated Thunder Horse platform and Noble Energy-operated Thunder Hawk platform, for ultimate delivery to the LOOP caverns in Clovelly, Louisiana. These pipelines are also expected to transport future volumes from Shell’s Appomattox platform (through the Mattox pipeline connection) and BP’s Thunder Horse North West Expansion project (both scheduled for start-up in 2019).

Ursa

Ursa transports crude oil production from a platform located in the Mississippi Canyon area to a connection with the Mars Pipeline at West Delta 143 platform for ultimate transportation to Chevron’s Fourchon terminal and LOOP caverns in Clovelly, Louisiana. Ursa is an 18-inch pipeline stretching 47 miles sized to support a production peak of at least 150,000 barrels per day. Transportation charges are established by a joint tariff published by the Mars Pipeline. The pipeline is operated by Shell. The recent start-up of the Shell-operated Kaikias development provides opportunity to capture a long-life resource base.

KM-Phoenix

KM-Phoenix’s assets include 13 refined product terminals - seven are supplied directly from BP’s refineries and four service BP’s Whiting refinery via BP’s owned and operated pipelines which are included in a right of first offer agreement with an affiliate of BP. Collectively, the terminals link BP’s three US refineries that collectively account for 746,000 barrels per day of refining throughput, with key marketing areas. KM-Phoenix serves customer gasoline and diesel needs for the following greater metropolitan areas: New York City, Chicago, San Francisco, St Louis, Atlanta, Baltimore, Indianapolis, Cincinnati and Dayton. Commercial arrangements are underpinned by long-term throughput contracts with BP.

These assets are well suited to take advantage of volume growth opportunities in high-demand refined petroleum product markets.

Strategic Rationale

  • The transaction is immediately accretive to distributable cash flow per unit to unitholders, based on a transaction value representing a 9.4 times multiple of the two-year (2019 – 2020) forward average of EBITDA generated by the interests to be acquired.
  • We expect these quality assets to underpin our mid-teens distribution growth for 2019. The organic growth embedded in these assets provides flexibility on the timing of future drop down acquisitions.
  • The transaction delivers high quality assets that are consistent with BPMP’s differentiated investment proposition:
    • Stable and predictable cash flows, supported by commercial arrangements which include life-of-lease production dedication or long-term throughput contracts, with BP and other well-established producers
    • Strategically located and highly integrated with BP operations.
  • Provides organic growth opportunities, with nominal capital investment by the Partnership.
  • Balances offshore and onshore cash flows and increases portfolio diversity.
    • Ursa and Mardi Gras assets strengthens BPMP’s position as an outlet for major offshore production from world-class, deepwater Gulf of Mexico assets and increased access to growing Gulf of Mexico production.
    • KM-Phoenix serves as a critical gateway between BP’s refineries and core onshore product marketing areas.

Acquisition Financing

The Acquisition was financed by drawing against the Partnership’s existing revolving debt facility with an affiliate of BP. Post transaction, netdebt to Adjusted EBITDA is expected to remain within financial frame of less than 3.5 times.

The terms of the acquisition were approved by the conflicts committee of the Board of Directors of the General Partner of BP Midstream Partners. This committee, which is comprised entirely of independent directors, was advised by Baird as to financial matters and Akin Gump Strauss Hauer & Feld LLP as to legal matters.

Revised Financial Frame

Post transaction, the 2018 full year cash available for distribution guidance has been increased to $140 – $145 million, up from $130 – 135 million.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd