Buckeye Partners, L.P. BPL has closed the acquisition of a 50% equity stake in VTTI B.V. (“VTTI”). The transaction is valued at $1.15 billion.
Details of the Acquisition
VTTI owns and operates 54.5 million barrels of petroleum products storage across 14 terminals, including 0.8 million barrels that are presently under development and will be placed into service in the first half of 2017.
The remaining 50% stake is held by Vitol, a leading energy and commodity company. Buckeye Partners and Vitol have equal board representation and voting rights in the VTTI venture, and intend to retain the existing management and employees.
Acquisition Synergies
The acquisition broadens Buckeye Partners’ geographic footprint by offering it access to world-class storage and marine terminalling services for refined products, liquid petroleum gas and crude oil in key global energy hubs across five continents. Further, VTTI’s revenue model is 100% fee-based, providing ample visibility on revenues.
Buckeye Partners expects the acquisition to be immediately accretive to its distributable cash flow per limited partner unit.
Price Movement
Shares of Buckeye Partners have gained 7.4%, outperforming the Zacks categorized Oil and Gas – Production Pipeline – MLPindustry gain of 7.2% over the past one month.
The outperformance can be attributed to Buckeye Partners’ diverse portfolio of refined petroleum product transportation assets in key geographical markets. The partnership continues to pursue both organic and acquisition-driven growth strategies to expand its scale of operations. Moreover, business conditions for storage remain strong across the partnership’s domestic and international assets.
Industry Outlook for 2017
Dearth of processing facilities, pipelines connecting these facilities with gas wells, and skilled workers for advanced technical jobs was a growth deterrent for the pipeline industry five years ago. Recently though, the industry has seen the addition of a significant amount – several billions of cubic feet per day – of new natural gas processing capacity using state-of-the-art equipment. Given that the price of liquids is tied to oil, price is a bigger consideration than processing capacity at this point.
As per an Energy Information Administration report, U.S. crude oil production is projected to average 8.8 million barrels per day in 2017. Brent crude oil prices are expected to average $52 per barrel, which reflects an upward correction of nearly 21% from the 2016 levels, while West Texas Intermediate (WTI) crude oil prices are predicted to be an average $51 per barrel.
Expectations of tighter crude demand and supply imbalances, production cuts announced by the OPEC, moderate but steady demand growth in U.S., and global oil demand bode well for the industry in 2017. However, these factors may be offset to a considerably extent if Iran brings more production on line. In such a scenario, the U.S. will ramp up production following the increased rig count, leading to yet another supply glut.
In 2017, higher rig activity is anticipated in the Marcellus and Utica shale regions compared with Haynesville, Fayetteville and other older shale gas basins, where there’s still a huge amount of untapped natural gas. It has become more expensive to get the gas out of the ground in the older shale plays, which is why operators have reduced their focus on these areas.
Zacks Rank & Key Picks
Buckeye Partners carries a Zacks Rank #3 (Hold). A few better-ranked stocks in this space include Archrock Partners, L.P. APLP, CONE Midstream Partners LP CNNX and Plains All American Pipeline, L.P. PAA.
Archrock Partners’ 2016 earnings estimates increased 7.4% over the last 60 days. The partnership sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CONE Midstream carries a Zacks Rank #2 (Buy). The partnership’s 2016 earnings estimates increased 2.6% over the last 60 days.
Plains All American Pipeline carries a Zacks Rank #2. The partnership’s 2016 earnings estimates increased 9.9% over the last 60 days.
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