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Phillips 66 Drops Down Assets Worth $1.3B to Partnership


Phillips 66 PSX recently entered into an agreement with its master limited partnership (MLP), Phillips 66 Partners LP PSXP, to dropdown assets worth $1.3 billion to the latter.

We note that this is by far the largest dropdown deal from the parent to the partnership unit. The deal is anticipated to close in Oct 2016.

Phillips 66 would dropdown 30 assets that comprise crude pipelines, refined products and natural gas liquids pipelines and terminal systems. The agreement includes assets supporting the parent company's refineries in Bayway, New Jersey; Billings, Montana; Borger, Texas, and Ponca City, Oklahoma.

This apart, Phillips 66 will enter into a decade long terminaling and throughput agreements that will include minimum volume commitments covering about 85% of expected volumes.

Phillips 66 Partners plans to fund the deal with debt as well as $196 million in new units issued to the parent company. The new partnership units will be allocated proportionally between common units and general partner units, in which the general partner will be able to retain its 2% general partner interest.


PHILLIPS 66 Price | PHILLIPS 66 Quote

On completion of the deal, the partnership will be entitled to receive cash earnings related to the acquired assets as of Oct 1, 2016.

The divestiture reflects about 8.7 times multiple based on the estimated full-year 2017 earnings before interest, taxes, depreciation and amortization (EBITDA) attributable to the assets of about $150 million of Phillips 66 Partners.

Phillips 66 is a diversified energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. The company processes, transports, stores and markets fuels and products globally. Phillips 66 Partners, the company's master limited partnership formed to acquire and operate midstream assets, is an important asset in its portfolio.

Currently, Phillips 66 carries a Zacks Rank #3 (Hold). Some better-ranked players from the energy sector include Bill Barrett Corp BBG and Evolution Petroleum Corp. EPM. All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bill Barrett posted a positive earnings surprise of 38.1% in the preceding quarter. It reported a positive earnings surprise in three of the four preceding quarters.

In the last reported quarter, Evolution Petroleum Corp. delivered a positive earnings surprise of 350.00%. Coming to the earnings surprise history, the company beat estimates in two of the last four quarters.

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