Shell Midstream To Buy Oil Pipelines Worth $630M From Shell

Shell (LON:RDSa) Midstream Partners LP (NYSE:SHLX) recently announced its decision to acquire pipeline assets from parent Royal Dutch Shell plc RDS.A in a $630 million drop-down deal. The transaction is expected to be closed on May 10, 2017.

Assets to be Purchased

The partnership plans to acquire a 100% interest in the Delta Pipeline, Na Kika Pipeline, and Refinery Gas Pipelines. Delta Pipeline – an almost 130 miles long onshore pipeline – connects five offshore pipelines to onshore markets. The Na Kika Pipeline is an approximately 80 miles long offshore pipeline, which is anchored to the Na Kika platform. The Refinery Gas Pipelines is a huge network of approximately 100 miles of pipelines. It is used to transport methane, natural gas liquids, and olefins. The pipeline connects Shell Chemical sites with many Gulf Coast refineries and plants.

Valuation of the Deal

According to Shell Midstream, the purchase price is approximately 8.4 times the pipelines’ projected adjusted earnings before interest, taxes, depreciation and amortization for the next one year. The partnership is likely to finance the deal with borrowing under the current credit facilities and cash on hand.

About the Partnership

Shell Midstream owns, operates, develops and acquires pipelines and other midstream assets. Its initial assets incorporate interests in entities that own crude oil and refined products pipelines. These assets serve as the key infrastructure to transport onshore and offshore crude oil production to Gulf Coast refining markets and to deliver the refined products from those markets to major demand centers. The partnership is based in Houston, TX.

Price Performance

In the last one year, the partnership’s units have underperformed the Zacks categorized Oil and Gas - Production Pipeline - MLP industry. The partnership’s units lost 9.50% while the industry registered an increase of 10.32%.

Zacks Rank and Stocks to Consider

Shell Midstream presently has a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in oil and energy sector incorporate Alliance Holdings GP, L.P. (NASDAQ:AHGP) and Global Partners LP (NYSE:GLP) . All these sport a Zacks Rank #1 (Strong Buy). You can seethe complete list of today’s Zacks #1 Rank stocks here.

Alliance Holdings is expected to witness current quarter sales growth of 5.07% year over year. The partnership had an average positive earnings surprise of 18.04% in the last four quarters.

Global Partners is expected to witness current quarter sales growth of 7.98% year over year. The partnership had an average positive earnings surprise of 96.55% in the last four quarters.

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