Kinder Morgan Energy Partners (UNKNOWN:KMP.DL) announced today that it will acquire American Petroleum Tankers (APT) and State Class Tankers (SCT) for $962 million from affiliates of private equity firms The Blackstone Group (NYSE:BX) and Cerberus Capital Management.
The acquisition will eventually provide Kinder Morgan Energy Partners with nine total medium-range Jones Act tankers, that each have 330,000 barrels of cargo capacity. According to Kinder Morgan, the marine transportation of crude oil, condensate, and refined products in the United States domestic trade is commonly referred to as Jones Act trade. The Jones Act requires goods transported in the U.S. to be transported with U.S.-made ships owned by U.S. companies and with crew from the U.S.
The five tankers provided by APT have an average age of 4 years. Currently SCT has no tankers, but has commissioned the construction of four tankers that are all scheduled to be delivered in 2015 and 2016. Kinder Morgan will have to invest approximately $214 million to complete the SCT tankers.
The Kinder Morgan press release highlighted that the APT vessels are all "operating pursuant to long-term time charters with high quality counterparties, including major integrated oil companies, major refiners and the U.S. Navy." The average term of the charters is four years, and there is a renewal option for two additional years. The SCT ships will all be under contract for operations with one unnamed integrated oil company, with an initial term of five years and a renewal clause for three additional years.
Kinder Morgan Energy Partners expects that after the SCT vessels are completed, the combined EBITDA of the transaction will stand at $140 million. Currently APT generates $55 million of EBITDA. It is anticipated that the transaction will close in the first quarter of next year.
"This is a strategic and complementary extension of our existing crude oil and refined products transportation business. Product demand is growing and sources of supply continue to change, in part due to the increased shale activity," said Kinder Morgan Energy Partners Terminals segment president John Schlosser in the press release. "As a result, there is more demand for waterborne transportation to move these products. We are purchasing tankers that provide stable fee-based cash flow through multi-year contracts with major credit worthy oil producers."
In November, American Petroleum Tankers withdrew its registration for an initial public offering, in which it sought up to $172.5 million. No reason was given for its withdrawal of the request.
"Blackstone and Cerberus are pleased to have founded and built American Petroleum Tankers into a market-leading Jones Act tanker company," added Sean Klimczak, Senior Managing Director at Blackstone. "We have enjoyed our partnership with APT's management team and wish them continued success with Kinder Morgan in this next phase of APT's growth."
-- Material from The Associated Press was used in this report.
Fool contributor Patrick Morris 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.