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New MLP Hitting the Market Soon: Phillips 66 (PSX), Chevron Corporation (CVX)

On Dec. 13, 2012 Phillips 66 (NYSE:PSX) announced it intends form a master limited partnership (MLP).  Management indicated it will file the required S-1 paperwork with the SEC early in 2Q13.  It is currently on schedule for a 2H13 IPO.

Phillips 66 (PSX)

MLP details

The MLP is structured in the traditional way.  Phillips 66 (NYSE:PSX) would be the general partner, have incentive distribution rights and make quarterly distributions to unit holders.  It would sell a minority interest to the public as limited partners.  Total proceeds of $300-$400 million are expected for Phillips 66 (NYSE:PSX) from the deal.  In the announcement, Phillips 66 (NYSE:PSX) did not detail the list of assets it will include.  Management did note the MLP would likely contain crude and product pipelines, terminals, rail loading and unloading facilities, truck business, and NGL assets. Management plans to use funds from the deal to invest in improving the movement of advantaged price crude and NGLs across its system.  In this way, the deal would create value for Phillips 66 (NYSE:PSX).

The Street expectations for the size of the assets in the MLP were larger than what management said were in its plans. Management noted it plans to include around $200 million in NGL related EBITDA and $250-$300 million of crude and product logistics.  It indicated it could grow the latter to $500 million in EBITDA in the near-term.  Phillips 66 reported $5.6 billion of EBITDA in FY12.  There are also additional assets, such as Phillips’ interest in Southern Hills and Sand Hills, that could add to EBITDA.  Some of the assets Phillips will likely include are currently operating as cost centers for the company.

About Phillips 66

Phillips 66 (NYSE:PSX) is a downstream energy company that operates three businesses, Refining and Marketing (R&M), Midstream and Chemicals.  R&M operating include 15 refineries with net crude capacity of 2.2 million barrels/day, 10,000 branded marketing outlets and 15,000 miles of pipelines.  The Midstream business operates its 50% interest in DCP Midstream, a US natural gas gatherer and processor with 7.2 billion cubic ft/day of processing capacity.  Its Chemicals business is the 50% interest in Chevron Phillips Chemical Company, a producer of olefins and polyolefins with 30 billion pounds of net annual chemical production.

Competition – valuation ranges

Phillips 66 is part of the oil and gas refiners and marketers industry.  This includes companies such as Marathon Petroleum Corp (MPC), Valero Energy Corporation (NYSE:VLO) and Chevron Corporation (NYSE:CVX).  These stocks currently trade at 8.5 -12 times TTM earnings with Phillips trading at 10 times currently.

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