BP to Spin off US Pipeline Assets MLP in IPO

The oil giant is following some of its competitors by selling units in a tax-advantaged master limited partnerhip to the public.
Matthew HellerSeptember 11, 2017

Following the example of other oil companies, BP is spinning off pipeline assets in an initial public offering it expects will raise up to $100 million.

The oil giant said in a regulatory filing that it will list BP Midstream Partners LP, a master limited partnership (MLP) formed by BP Pipelines, on the New York Stock Exchange.

BP Pipelines, the company’s principal mainstream subsidiary in the U.S., operates a network of 3,500 miles of pipelines and terminal facilities that transport and store more than 1.3 million barrels per day of oil, refined products and natural gas.

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“We are focused on generating stable and predictable cash flows by providing fee-based transportation services to BP and third parties with limited direct exposure to commodity price fluctuations,” BP said in the filing, which did not specify pricing or the number of units to be offered.

The company had indicated in July it would spin off some of its U.S. pipeline assets. As International Business Times reports, it is joining a number of upstream and downstream companies that have spun off their pipeline infrastructure and assets in the recent years.

The list includes major U.S. refiners Valero, Tesoro, and Marathon Petroleum. The largest such IPO was by Royal Dutch Shell, which raised nearly $1 billion by spinning off assets in 2014.

As an MLP, BP Midstream will be able to distribute excess cashflow to investors as tax-deferred dividends, providing tax advantages. The structure is often used by companies in the energy sector.

Most MLPs rely on external debt to finance new projects but as Reuters reports, rising interest rates “have made borrowing costlier for MLPs, weighing on their performance in recent months despite stabilizing oil prices.

“BP’s rationale for an MLP structure is basically to attract more investors,” Raymond James analyst Muhammed Ghulam told Reuters.

Houston-based Oasis Petroleum made a similar move on Monday, announcing it had launched an IPO for its new master limited partnership, Oasis Midstream Partners LP. With units priced at between $19 and $21, the offering is expected to generate net proceeds of $136.8 million.