Skip to Content
Stock Analyst Update

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.

Mentioned:

 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. 

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Allen Good does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.