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Phillips 66 (PSX) to Acquire Its Pipeline Partnership for $3.4B

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  • PSX
  • CPE

Phillips 66 PSX entered an agreement with its master limited partnership (“MLP”), Phillips 66 Partners PSXP, to acquire all of the latter’s units, which it does not already own, for $3.4 billion.

The acquisition is part of Phillips 66’s plans to simplify its governance and corporate structure. The deal also comes as the company recovers from the pandemic-induced lockdowns, significantly reducing global energy demand.

The deal is expected to complete in the first quarter of 2022. Following the deal closure, Phillips 66 Partners will be a wholly-owned subsidiary of Phillips 66 and will no longer be a publicly traded partnership.

Once the deal closes, Phillips 66 Partners’ unitholders will receive 0.50 shares of Phillips 66 common stock for each unit held. Notably, the acquisition will enable Phillips 66’s shareholders and Phillips 66 Partners’ unitholders to participate in the value creation of the combined entity.

The transaction is the latest in MLP roll-ups involving pipeline operators. Recently, pipeline firms have been restructuring as U.S. regulators claimed that they would no longer be allowed to recover an income tax allowance as part of the fees charged to shippers under a cost-of-service rate structure.

Earlier, the MLP structure was common among U.S. pipeline operators, and energy companies endorsed billions of dollars in pipeline and storage products under MLPs. The spin-off of pipeline businesses into MLPs was a widely-used approach for oil and gas companies to attract capital.

However, the structure became unpopular after changing the U.S. tax policy, which hammered MLP stock prices. In December 2020, TC Energy Corporation TRP announced a similar roll-up to acquire all of the remaining outstanding units of its subsidiary TC PipeLines. The transaction closed in March and TC PipeLines is no longer a publicly-held MLP.

Company Profile & Price Performance

Established in Houston, TX, Phillips 66's operations involve refining, midstream, marketing and specialties, and chemicals.

Shares of the company have underperformed the industry in the past three months. The stock has gained 4.8% compared with the industry’s 14.6% growth.

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Zacks Investment Research

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Zacks Rank & Stock to Consider

Phillips 66 currently carries a Zack Rank #3 (Hold).

One better-ranked player in the energy space is Callon Petroleum Company CPE, currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Callon’s earnings for 2021 are expected to increase 53.9% year over year.


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TC Energy Corporation (TRP) : Free Stock Analysis Report

Phillips 66 (PSX) : Free Stock Analysis Report

Phillips 66 Partners LP (PSXP) : Free Stock Analysis Report

Callon Petroleum Company (CPE) : Free Stock Analysis Report

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