This Could Be a Big Buy for Phillips 66 Partners LP

The master limited partnership recently announced its first acquisition; here's what you need to know.

Feb 14, 2014 at 5:13PM

Phillips 66 Partners (NYSE:PSXP) reported its first acquisition on Thursday, announcing its intent to purchase the 681-mile Gold Line system and two propylene storage systems from its parent company, Phillips 66 (NYSE:PSX), for $700 million. Investors had been waiting with bated breath for any news of a dropdown; so let's take a closer look at Phillips 66 Partners' first big buy. 

The deal
When Phillips 66 Partners began its publicly traded life last July, it did so with a limited footprint, which only included the following assets:

  • Clifton Ridge crude oil pipeline
  • Terminals and storage in Louisiana, Illinois, and Texas
  • Sweeny to Pasadena refined products pipeline
  • Hartford Connector refined products pipeline
  • Three NGL fractionators: 130,000 bpd capacity 

In this context, any acquisition is going to be significant. The Gold Line system shuttles approximately 132,000 barrels per day of refined products from a Phillips 66 refinery in Borger, Texas, north to Cahokia, Ill. It also includes two lateral lines, and four terminals with 4.3 million barrels of aggregate storage capacity. 

The two propylene storage systems are located in Medford, Okla., with a combined capacity of 70,000 barrels. The units will serve as a temporary stopover for refinery-grade propylene coming from the Phillips 66 refinery in Ponca City, Okla., en route to the major natural gas liquids hub in Mont Belvieu, Texas. 

In addition to acquiring the assets, PSXP enters into transportation, storage, and terminaling agreements with Phillips 66 based on minimum throughput contracts with terms ranging from five to 10 years, resulting in EBITDA contributions between $65 and $70 million in the first full year of operations. For context, the partnership reported fourth-quarter EBITDA for all operations of $18.8 million, which means -- at least on paper -- the new throughput contracts could roughly double EBITDA, once they go into effect.

Phillips 66 Partners will use $400 million in cash on hand, a five-year, $160 million note payable to a PSX subsidiary, and an issuance of new units worth $140 million. The number of new units issued will be based on an average price of $38.86, with 98% of them issued as limited partner units, and the remaining 2% issued as general partner units. 

The bigger picture
Again, this certainly enhances the asset footprint at PSXP, and the deal is expected to be immediately accretive to distributable cash flow. The boost to DCF should benefit investors nicely. As CEO Greg Garland explained: "This transaction will position Phillips 66 Partners to deliver on its strategic plans of achieving top-quartile distribution growth." 

What is potentially more intriguing, however, is the focus that parent company Phillips 66 is putting on its own midstream growth story. It recently announced two major projects worth more than $3 billion to enhance the company's natural gas liquids footprint, specifically targeting growth in liquefied petroleum exports and NGL fractionation. Management at Phillips 66 has even gone as far as changing the boiler-plate description of the company from "an advantaged downstream energy company" to "a growing energy manufacturing and logistics company."

Midstream is the focus, and that should bode well for future dropdowns at Phillips 66 Partners.

Our top stock for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report, "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Aimee Duffy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers