Some publicly-traded U.S. energy pipeline and oil-storage partnerships are restructuring into simpler business models to help attract new investors and spur growth.
Rising oil and gas production has spawned billions of dollars of new transport, gathering and storage projects. But the companies most responsible for these projects can allocate up to 50 percent of their income to the general partner, leaving less for other holders or to invest in new projects.
Historically, these firms have passed most of their income along to holders and sold equity or debt to finance new projects or acquisitions. But in the last year, what they have had to offer investors has jumped. MPLX Energy Logistics LP, for instance, paid a 9.7 percent annualized distribution last quarter to its holders, up from 7.9 percent a year earlier, according to figures from investment firm East Daley Capital Advisors.
“The higher cash yield makes the economics of these projects a little tougher,” said Kendrick Rhea, an analyst at East Daley Capital. He estimates the cost of equity has risen nearly a third for some companies in the last year.
Source: NuStar, other energy partnerships simplify business models to spur growth
H2O Midstream, LLC announced today that it has secured an initial funding commitment of $100 million, with investments from EIV Capital and co-investments from several of EIV’s institutional partners collectively representing more than $50 billion in assets under management. The company is currently pursuing oil and gas opportunities related to water infrastructure throughout North America.“We see a tremendous opportunity to help the industry lower costs, increase reliability, and improve safety performance while allowing producers to focus on core drilling, completions, and production operations,” said Jim Summers, Chief Executive Officer of H2O Midstream. “The key is applying best practices developed over the past 40 years by traditional midstream companies to the current challenges of the emerging water market.”
Source: EIV Capital and partners commit $100 mln to H2O Midstream – PE HUB
In late January, about 40 Wall Street financiers packed into a private dining room at III Forks Steakhouse in Houston for an update on the troubled multibillion-dollar merger of pipeline companies Energy Transfer Equity and the Williams Cos. With shares of Dallas-based Energy Transfer down 50 percent since the transaction was announced in September, the investors interrogated Energy Transfer’s chief financial officer, Jamie Welch. He tried to assuage analysts and investors, assuring them that his company was committed to closing the deal.Less than 10 days later, Energy Transfer fired Welch.Welch’s ouster stunned most investors, causing Energy Transfer’s stock to drop 42 percent in one day, but not everyone was surprised. Since December, Welch, a former investment banker who helped sculpt the $38 billion acquisition, had been actively trying to recut the deal or get out of it entirely.In recent months, Welch has called Williams shareholders, urging them to push the board to reconfigure the deal or vote against it, according to interviews with five shareholders who requested anonymity because they were not authorized to discuss the private conversations.Welch argued that the deal’s terms, a mix of stock and a sizable $6 billion cash payout to Williams shareholders, would crush the combined new company under a mountain of debt. In one call, a shareholder said, Welch referred to the cash payout as “mutually assured destruction.”
Source: Energy Transfer’s ex-CFO reportedly sought to undo Williams Cos. merger deal | | Dallas Morning News
The $500 billion midstream sector is bracing on Tuesday for a ruling from a U.S. bankruptcy judge that could determine if energy producers can use Chapter 11 to shed contracts with pipeline operators for transporting oil and natural gas.U.S. Bankruptcy Judge Shelley Chapman in Manhattan will read her ruling at 2:30 pm ET on a request by Houston-based Sabine Oil & Gas Corp to reject a contract with an affiliate of Cheniere Energy Inc to gather and process natural gas in Texas.Chapman’s ruling will be the first major test for using Chapter 11 to shed the contracts, which were seen as a way to protect the midstream industry from the volatility of energy prices.Underpinned by the stability offered by the capacity contracts, many midstream companies organized as high-yielding master limited partnerships favored by income-seeking investors.
Source: Midstream energy industry braces for key bankruptcy court ruling | Reuters