Sunoco LP, one of the oldest US gas-station owners, agreed last month to buy NuStar Energy LP for about $6.5 billion in stock, giving it control of a sprawling network of pipelines, terminals and other infrastructure crucial to its own supply chain.
The industry appears ripe for similar deals, said Tom Sharp of the research company Arbo.
“In the US, it’s very difficult for upstream, midstream, or downstream players to expand,” Sharp said in an interview. “Vertically integrating is a better alternative.”
When it comes to oil and gas M&A, the slew of megamergers between US drillers has grabbed most of the big headlines this past year. But don’t ignore the midstream sector.
Sunoco LP, one of the oldest US gas-station owners,agreed last monthto buy NuStar Energy LP for about $6.5 billion in stock, giving it control of a sprawling network of pipelines, terminals and other infrastructure crucial to its own supply chain.
The industry appears ripe for similar deals, said Tom Sharp of the research company Arbo.
“In the US, it’s very difficult for upstream, midstream, or downstream players to expand,” Sharp said in an interview. “Vertically integrating is a better alternative.”
Although there were several large, lateral deals in the past year between pipeline operators — including ONEOK Inc.’s$19 billion combinationwith Magellan Midstream Partners LP — the sector may be close to the limits of what it is allowed to do.
It’s already dominated by several corporate giants, including Energy Transfer LP, Enterprise Products Partners LP and Williams Cos.
Even the wave of M&A in the fragmented US shale patch, which is far less consolidated than pipelines, hasattracted the attentionof the Federal Trade Commission. Exxon Mobil Corp.’s$60 billion takeoverof Pioneer Natural Resources Co. and Chevron Corp.’s$53 billion dealfor Hess Corp. are currently under review.
While pipeline players can’t easily buy a rival, they alsostruggleto grow organically. Legal challenges from environmentalists, political opposition in blue states and a glacial federal permitting process have made it exceedingly difficult to build new conduits.
Some companies that might be acquisition targets include EnLink Midstream LLC, DT Midstream Inc. and Western Midstream Partners LP, according to Justin Carlson, chief executive officer of East Daley Analytics, a midstream oil and gas data and analysis company.
EnLink and Western both have exposure to the oil-rich Permian Basin of West Texas and New Mexico and to natural gas lines which would provide high value, Carlson said. DT Midstream’s position in the Haynesville Basin straddling Louisiana and East Texas would also give a buyer “an extremely important resource,” he said.
Meanwhile, demand for US natural gas production is steadily expanding. That’s only raising the incentive for companies like Sunoco, either buyers or processors of hydrocarbons, to seek direct ownership of the limited universe of pipelines and terminals.
So don’t be surprised if we see more deals of that nature.
