Why BP's MLP Plans Are Inconsequential
While the move allows the integrated firm to efficiently monetize midstream assets while largely retaining control, it also represents a fraction of the company’s value.
BP (BP) has announced plans to create a master limited partnership, or MLP, to hold its U.S. midstream assets: BP Midstream Partners, or BPMP, which will initially own feedstock and product pipelines serving BP’s Whiting refinery and interest in several Gulf of Mexico crude pipelines. BP will retain interest in several crude, natural gas liquids, and refined product pipelines, which will be used to expand BPMP over time.
We view the decision positively, but as largely inconsequential, leaving our fair value estimate and moat rating unchanged. While it allows BP to efficiently monetize midstream assets while largely retaining control, it also represents a fraction of the firm’s value.
Based on 2018 pro forma EBITDA estimates provided in the initial filings, and using the current valuation for Shell’s MLP Shell Midstream Partners, or SHLX (10 times 2018 consensus EBITDA) as a comp, we estimate BPMP's enterprise value at about $1.3 billion. That value represents about 1% of BP’s current market capitalization. Similarly, SHLX, which went public in 2014, only represents about 2% of Shell’s market capitalization.
Furthermore, according to filings, BP only plans to issue $100 million worth of limited partner units, leaving it owning the majority of BPMP’s limited partner interest. Even if that figure is revised upward, and assuming BP only retains a 50% equity interest in BPMP, cash proceeds from the transaction will only be about $650 million by our estimates. The idea that a large integrated firm creating an MLP is not a “needle-mover” has likely kept other U.S. integrateds from pursuing a similar strategy.
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Allen Good does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.