Tuesday, September 17, 2019

Another Staggering Deal In The Oil Patch -- September 17, 2019

I simply cannot keep up.

It staggers the imagination that the Democrats running for president -- all of them except Biden and I doubt he remembers his talking points anyway -- all of them except for Biden want to shut down the US oil and gas industry. It staggers the imagination on so many levels.

So, here we go again. Another $5 billion deal. And this one is huge.

Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, career, or relationship decisions based on what you read here or think you may have read here.

Did you all see this? Energy Transfer -- the DAPL folks -- bought SemGroup and paid an eye-popping 65% premium to its closing price last Friday, September 13, 2019. A 65% premium! Wow, I can buy new shoes for Sophia. LOL. It turns out that Energy Transfer got SemGroup "cheap." See what Motley Fool has to say:
Energy Transfer announced this week that it would acquire SemGroup for $17 per share, an eye-popping 65% premium to its closing price last Friday. The cash-and-stock deal valued the midstream company at $5 billion, including the assumption of debt.

While the acquisition of SemGroup will do several things for Energy Transfer, the main driver of this deal is how it will bolster the company's oil transportation business. Here's a look at why Energy Transfer is making a $5 billion bet on crude oil.At the heart of the deal is SemGroup's Houston Fuel Oil Terminal Company (HFOTCO), which is a world-class crude oil terminal on the Houston Ship Channel. That facility can store 18.2 million barrels of oil and has five deepwater ship docks from which it can export oil to global markets. Supporting the terminal are stable take-or-pay contracts that provide predictable cash flow.

In addition to HFOTCO, Energy Transfer will pick up crude oil and NGL gathering assets in the DJ Basin of Colorado and Anadarko Basin in Oklahoma and Kansas. The company will also get some crude oil and NGL pipelines that connect those two regions to oil terminals in Cushing, Oklahoma, which is a major oil hub. Finally, Energy Transfer will gain a significant oil gathering and transportation business in western Canada.

Although Energy Transfer is paying a substantial premium for SemGroup, it's getting all these assets at a good value. The company is paying only nine times EBITDA after adjusting for the expected $170 million in annual cost savings. For comparison's sake, Kinder Morgan recently sold its Canadian subsidiary and a related pipeline for 13 times EBITDA. The low price Energy Transfer is paying despite the significant premium is a result of the slump in SemGroup's stock over the past few years. The current offer price, for example, is still 28% below where shares traded a year ago and more than 50% below where they were three years ago.
So much more at the link. If anyone is paying attention: this is simply incredible.

I would imagine ET thought it easier to buy a pipeline company rather than tring to build another one after their DAPL experience.

2 comments:

  1. For Americas sake Lets hope that the Houston Fuel Oil Terminal Company (HFOTCO) and the likes have tremendous security procedures in place..

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    1. The good news: if Trump loses in 2020, anyone of the ten stellar Democrat polls that will replace him, will have this all under control. I'm particularly impressed with Beto's plans and Biden's plans.

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