Kinder Morgan Energy Partners L.P. (KMP) has agreed to acquire American Petroleum Tankers or APT and State Class Tankers or SCT from affiliates of The Blackstone Group and Cerberus Capital Management. The transaction, worth $962 million, represents a big move for shipping tankers in the oil and gas sector.
APT and SCT are involved in the marine transportation of crude oil, condensate and refined products in the United States domestic trade, commonly referred to as the Jones Act trade.
APT’s fleet comprises five medium range Jones Act qualified product tankers, each with a capacity of 330,000 barrels of cargo. These vessels are operated by Crowley Maritime Corporation, which was founded in 1892.
SCT has contracted the construction of four medium range Jones Act qualified product tankers, each with a capacity of 330,000 barrels of cargo. The delivery of the vessels, which are being constructed by General Dynamics’ NASSCO shipyard, are scheduled for 2015 and 2016. Kinder Morgan Energy Partners is likely to invest around $214 million to complete the construction of the SCT vessels.
Subject to standard regulatory approvals, the transaction is likely to close in the first quarter of 2014 and will be immediately accretive to cash available to KMP unitholders.
Currently, APT generates about $55 million of annual EBITDA. Upon completion of construction of the four SCT vessels, the partnership estimates combined annual EBITDA of about $140 million, which signifies an EBITDA multiple of 8.4 times.
The general partner of Kinder Morgan Energy Partners, Kinder Morgan, Inc. (KMI) has agreed to waive its incentive distribution amounts of $16 million, $19 million and $6 million in 2014, 2015 and 2016, respectively, to facilitate the transaction.
Kinder Morgan Energy Partners carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil and gas sector include Harvest Natural Resources Inc. (HNR) and Tesco Corp. (TESO). All these stocks hold a Zacks Rank #1 (Strong Buy).
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