Enterprise Products Buys Oiltanking Partners

Pipeline company Enterprise Products Partners LP said on Wednesday it would buy crude storage provider Oiltanking Partners LP for $4.41 billion, a strategic move that will expand its export platform on the U.S. Gulf Coast.

The Houston-based company, a first mover this year in the race to export ultralight crude oil known as condensate, said it was acquiring Oiltanking's general partner and taking a majority stake in its limited partner.

Demand for crude storage is surging on a dramatic increase in U.S. production of crude and natural gas liquids (NGLs) from shale formations, expanding refining capacity on the Texas and Louisiana coasts as well as growing overseas demand for refined petroleum products.

Both Enterprise and Oiltanking are master limited partnerships (MLPs), a tax-advantaged structure that has soared in popularity with energy companies since it lowers the cost of capital. A general partner typically has control over the limited partner.

An Enterprise executive told investors on a conference call that the company has "lusted" after the Oiltanking assets for years. Enterprise Products had been Oiltanking Partners' largest customer, accounting for about 30 percent of Oiltanking revenue in 2013.

The purchase will add to Enterprise's infrastructure on the Gulf Coast, where other pipeline companies such as Kinder Morgan Energy Partners and Magellan Midstream Partners are also spending millions to build out capacity.

Oiltanking Partners owns marine terminals on the Houston Ship Channel and the Port of Beaumont, Texas, with a total of 12 docks and about 24 million barrels of oil and petroleum products storage capacity on the Gulf Coast.

Enterprise Products paid $2.21 billion in cash and 54.8 million units valued at $2.2 billion for Oiltanking Partners. It also paid $228 million to assume notes receivable issued by Oiltanking Partners.

As part of the deal, Enterprise Products said it plans to acquire the remaining publicly held limited partner interest in Oiltanking Partners in a unit-for-unit exchange at a ratio of 1.23 Enterprise Products units for each Oiltanking Partners unit.

Shares of Oiltanking Partners were up 2.4 percent at $50.80 in midday trading on the New York Stock Exchange. Enterprise Products shares were up 0.4 percent at $40.46.

Copyright Reuters 2014.