When Two Partners Quit, Will the Third One Sue? (EPD, EPE, TPP)

Master limited partnership Enterprise Products Partners L.P. (NYSE:EPD) has announced that it will pull out of a partnership with an affiliate of Oiltanking Holdings America, Inc., a subsidiary of privately-held German firm Marquard & Bahls AG. Enterprise’s general partner, Enterprise GP Holdings L.P. (NYSE:EPE) also owns the general partner of TEPPCO Partners, L.P. (NYSE:TPP), the third partner in this joint venture. The reason for the split is only stated as a “disagreement” with Oiltanking.

The joint venture is/was an offshore crude oil port and pipeline system along the Gulf Coast of Texas that would have included 5.1 million barrels of storage capacity and a crude oil pipeline system with capacity of up to 1.8 million barrels/day. The project was slated to cost approximately $1.8 billion.

Enterprise will take a non-cash charge of about $34 million against second quarter 2009 earnings. Oiltanking has taken the position that the dissociation by Enterprise and TEPPCO is “wrongful and in breach” of the partnership agreement. Enterprise believes its actions are allowed by the agreement, and “should the need arise, intends to vigorously defend such actions.”

TEPPCO common units are up slightly this morning, while Enterprise and Enterprise GP are both down slightly.

Paul Ausick
April 22, 2009