Why Martin Midstream Partners could grow with Alinda’s support

Market Realist

Key takeaways from Martin Midstream Partners' analyst meeting (Part 3 of 7)

(Continued from Part 2)

Martin Midstream Partners and Alinda

Martin Resource Management (MMRC), the 19% owner of Martin Midstream Partners’ (MMLP) common unit holdings, sold a 49% ownership interest of Martin Midstream GP LLC (MMGP), the general partner of MMLP, to Alinda Capital in August 2013. Alinda is one of the world’s largest independently owned infrastructure investment firms. It has approximately $7.8 billion in equity commitments for infrastructure investments. MMRC partnered with Alinda to take advantage of midstream infrastructure needs. The financial resources of Alinda may drive other investment opportunities previously unavailable to MMGP. Alinda and MMRC are expected to help MLP in potential acquisitions and asset drop-downs through efficient and strategic midstream investment.

Recently, MMLP has expressed its intention to construct a crude oil condensate splitter in the Corpus Christi market. MMLP may team up with Alinda Capital for a joint venture on this project. The cost of the project would range from $200 million to $500 million and it has yet to be finalized. MMLP requires Alinda Capital to share capital requirements. The condensate splitter plant will cater to the growing needs of the Eagle Ford Shale area.

Eagle Ford Shale production has increased greatly over past ten years and is projected to continue growing in the next five years. This production has flooded the Gulf Coast with light hydrocarbons (condensate). The excess production of crude oil is creating a lot of strain on existing midstream infrastructure and also Gulf Coast refineries. These refineries are typically built to process heavy sour crude compared to the light sweet crude from the Eagle Ford Shale that has a significant condensate component. The condensate splitter plant of MMLP at Corpus Christi, Texas, is projected to have a capacity of 100 thousand barrels per day. A splitter blends condensate with normal crude to meet the demand for refined fuels. So MMLP will be in a good position to benefit from the high demand of the midstream infrastructure in the Eagle Ford shale area.

The partnership with Alinda may provide additional growth opportunities for MMLP. Alinda’s investment in MMGP Holdings was made through a $4.0 billion equity commitment, and it owns three midstream-related investments. Alinda is invested in Houston Fuel Oil Terminal, with 16 million barrels of capacity for liquid petroleum products. It has a 50% interest in RIGS Haynesville Partnership, which has a 464-mile pipeline with 2.1 billion cubic feet per day of capacity that transports Haynesville Shale gas to pipelines serving the Northeast and Midwest markets. Alinda also invests in Howard Energy Partners, which has midstream facilities in South Texas, primarily serving the Eagle Ford shale plays. The partnership with MMLP may open new opportunities. Alinda could sell some of these assets to MMLP through a drop-down, which could fund growth.

MMLP’s Corpus Christi Crude Terminal (or CCCT) located near the Eagle Ford Shale production area, another major oil and gas production region, has a terminal point with pipelines of Harvest Pipelines. The first two phases of the terminals were completed in 2012, bringing total capacity to 0.6 million. To realize full capacity, a newly dedicated dock came online in November 2013, and after the third-phase expansion to be completed in the second quarter of 2014, total capacity will reach 0.9 million barrels. The facility has seen increasing shares of the segment’s EBITDA. It accounted for $6.0 million of EBITDA in 2012 (11.7%) and increased three-fold, to $18.1 million, in 2013 (27.0%).

Overall, the terminaling and storage section witnessed a 27% compounded growth rate since 2011, due mainly to asset acquisitions from L&L, Talen, lubricant blending and packaging assets, and the CCCT expansion. The growth is expected to continue following the expansion of CCCT and higher production in the Eagle Ford Shale area, as more rig counts are anticipated in the Gulf of Mexico area in 2014.

Martin Midstream Partners (MMLP) is a limited partnership that has an integrated distribution network consisting of transportation, terminaling, and storage and midstream logistical services. Other major companies that also operate in the same sector as MMLP include Sunoco Logistics Partners (SXL), Enterprise Products Partners (EPD), Genesis Energy (GEL), and NGL Energy Partners (NGL). Some of these companies are components of the Alerian MLP ETF (AMLP).

Continue to Part 4

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