Kinder Morgan Goes Big Into Marine Tankers With Nearly $1 Billion Purchase

Energy

Published: December 23, 2013 9:50 am

Last Updated: December 23, 2013 11:39 am

Kinder Morgan Energy Partners L.P. (NYSE: KMP) announced on Monday that it has entered into an agreement to acquire American Petroleum Tankers (APT) and State Class Tankers (SCT) for nearly $1 billion in a combined transaction value. Monday’s move will be a big one for shipping tankers in the oil and gas sector.

The acquisition is from affiliates of Blackstone Group L.P. (NYSE: BX) and Cerberus Capital Management. APT and SCT are both in the marine transportation of crude oil, condensate and refined products in the United States domestic trade. The total sum is for $962 million in cash.

Where this gets interesting is that Kinder Morgan Inc. (NYSE: KMI), the general partner of KMP, has agreed to waive its incentive distribution amounts of $16 million in 2014, $19 million in 2015 and $6 million in 2016 to facilitate the transaction.

APT’s fleet consists of five medium range tankers with 330,000 barrels of cargo capacity each. The APT fleet average of four years is also said to be one of the youngest fleet in the industry. Each is also operating under long-term time charters with high-quality counterparties and with an average remaining term of approximately four years plus renewal options of two years.

SCT has commissioned the construction of four medium range Jones Act qualified product tankers. The vessels are scheduled to be delivered in 2015 and 2016. Each SCT vessel will be operated under long-term time charters with a major integrated oil company for a period of five years, with renewal options to extend the initial term by up to three years. Kinder Morgan said that it will invest approximately $214 million to complete the construction of the SCT vessels.

Kinder Morgan signaled that there is more demand for waterborne transportation to move these products. The deals are expected to close in the first quarter of 2014. It was also represented that the APT transaction will be immediately accretive to earnings.

Kinder Morgan Energy Partners L.P. (NYSE: KMP) already has a distribution “yield equivalent” of 6.8%. If this is immediately accretive, that distribution may be heading higher yet again. Just keep in mind that close to a $1 billion market valuation of the transactions compares to a market cap of almost $35 billion for both Kinder Morgan outfits included in the deal.

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