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Enterprise Purchase of Oiltanking Tied to Growing U.S. Exports

Enterprise Products Partners LP on Wednesday agreed to buy stakes in affiliates of global marine terminal giant Oiltanking GmbH to enhance its crude and petroleum products storage operations on the Texas Gulf Coast.

Oiltanking Holding Americas Inc. has done business with Enterprise for decades from its operations on the Houston Ship Channel and the Port of Beaumont, TX, where it has 12 ship and barge docks and 24 million bbl of crude oil and petroleum products storage capacity. Germany's Oiltanking GmbH is a global storage provider for crude oil, refined products, liquid chemicals and gases.

"We have had a strategic relationship and enjoyed mutual growth with Oiltanking Partners and its predecessors since 1983," said Enterprise CEO Michael A. Creel. "The combination of Enterprise's system of midstream assets and Oiltanking Partners' access to waterborne markets and crude oil and petroleum products storage assets would extend and broaden Enterprise's midstream energy services business. This combination would benefit our producing and consuming customers by enhancing their respective access to supplies, domestic and international markets, and storage.

The merger, said Creel, provides Enterprise with "three principle avenues" for long-term value creation:

  • At least $30 million of synergies and cost savings from the businesses' integration;
  • Opportunities for new business and from repurposing existing assets for 'best use' to meet growing demand for export and logistical services for petroleum products related to the increase in North American crude oil, condensate and natural gas liquids production from the shale and unconventional plays; and
  • Securing ownership and control of Oiltanking's assets considered essential to Enterprise midstream business.

Enterprise agreed to pay $4.41 billion to acquire Oiltanking GmbH’s 67% stake in Oiltanking Holding Americas, broken down as $2.21 billion in cash and close to 54 million in common units. Enterprise also is paying $228 million to assume some debt, and it is buying 2% of the general partnership interest.

Oiltanking's marine terminal on the Houston Ship Channel is connected with Enterprise's Mont Belvieu facility and is "integral" to the company's growing liquefied petroleum gas (LPG) export, octane enhancement and propylene businesses. Enterprise noted that it has loaded or unloaded more than 3,500 ships with more than 600 million bbl of LPG across Oiltanking Partners' docks for the past 31 years.

Enterprise also is Oiltanking's largest customer, representing about 30% of its 2013 revenue.

"This proposed combination would convert essential dock and land access associated with our LPG export and octane enhancement business from a services agreement to ownership," noted Enterprise. "These two businesses accounted for approximately 10% of Enterprise's gross operating margin in 2013.

"We expect the contribution from these businesses to increase in association with volume growth related to the completion of expansions of our LPG export facility in 2015 and 2016 and improvements to our octane enhancement facility in 2015. Upon completion of the expansions of our LPG export facility in 2016, we estimate that Enterprise will have over $1.5 billion of assets on land currently owned by Oiltanking Partners."

Standard & Poor’s Ratings Services (S&P) was optimistic about the transaction. It "offers meaningful strategic benefits" to Enterprise's future growth plans," said S&P credit analyst Aneesh Prabhu. "We believe Oiltanking's marine terminal assets hold a unique and coveted position on the Houston Ship Channel, enhance the partnership's access to waterborne markets, and are important to the partnership's plans to grow liquefied petroleum gas exports and its refined products and petrochemicals businesses."

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