Oil and natural gas transporter, Energy Transfer Partners, L.P. ETP recently announced that it will divest substantial stake in its controversial Rover pipeline project’s operating entity, ET Rover Pipeline LLC aka HoldCo to private equity group, The Blackstone Group L.P. BX for approximately $1.57 billion.
HoldCo presently has 65% operating interest in the Rover pipeline. Upon closing the deal, Blackstone Energy Partners and Blackstone Capital Partners will own 49.9% interest in HoldCo, leaving Energy Transfer with 50.1% of the entity. This will, in turn, leave Energy Transfer with 32.56% interest in the pipeline project, as Blackstone will own 32.44% stake in the same.
Per the deal, Blackstone will reimburse Energy Transfer with the proportionate share of the construction costs of the Rover pipeline. The deal is expected to be closed by the fourth quarter of 2017.
After-deal Scenario in the Rover Pipeline Project:
About the Pipeline
Following the construction, the $4.2 billion Rover pipeline will be one of the biggest natural gas pipelines in the US with a transportation capacity of 3.25 billion cubic feet of gas per day. The 700-mile pipeline will carry domestically produced natural gas to the markets across the United States as well as Canada, from the Marcellus and Utica Shale areas of production.
Although the Rover pipeline won Federal Energy Regulatory Commission's (FERC) nod in Jan 2017, the Department of Environmental Protection of West Virginia asked the partnership to halt construction, citing environmental violations. FERC banned horizontal drilling on 10 May 2017 under the waterways and roads, following the 2 million gallons of drilling fluid spill in the Tuscarawas River wetlands in Ohio. It stopped the drilling activity of the pipeline, pushing the starting date of the project's first phase from Jul 2017 to late summer.
Why the Deal?
Energy Transfer plans to use the proceeds from the transaction to settle its debt. As of Mar 31, 2017, the partnership had long-term debt (less current maturities) of $31,648 million. The proceeds will also be used to fund the partnership's current projects like the $3.8 billion Dakota Access Pipeline. Energy Transfer expects that it will help the partnership in reducing its equity issuance. The partnership currently has 1.17 billion outstanding shares.
About the Partnership
Energy Transfer is one of the largest master limited partnerships, having one of the most diversified portfolios of energy assets in the United States. The asset list includes 71,000 miles of crude oil, natural gas, natural gas liquids and refined products pipelines, crossing 36 states. It also provides fractionation, storage and terminalling facilities. The partnership is headquartered in Dallas, TX.
Energy Transfer has lost 13.9% of its value year to date compared with 8.8% decline of its industry.
Zacks Rank and Stocks to Consider
Energy Transfer Partners presently has a Zacks Rank #4 (Sell).
Some better-ranked stocks in the oil and energy sector include Braskem S.A. BAK and First Solar, Inc. FSLR. Both these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Braskem’s sales for 2017 are expected to increase 11% year over year. The company delivered an average positive earnings surprise of 107.8% in the last four quarters.
First Solar’s sales for the third quarter of 2017 are expected to increase 12.7% year over year. The company delivered an average positive earnings surprise of 524.2% in the last four quarters.
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