A rapid influx of master limited partnerships (MLPs) and expansion project
s to serve the US shale
plays increased global midstream mergers and acquisitions
(M&A) transactions by 16% above 2012 transaction values
to nearly $62 billion (B), according to IHS.
This $62 B midstream deal value in 2013 was an
all-time high, if you exclude the extraordinary $32 B
midstream portion of the $41 B Kinder Morgan/El Paso
transaction in 2011 that elevated transactions to more than
$78 B, said Cynthia Pross, midstream transactions
analyst at IHS Energy and principal author of the IHS
Herold Year-End 2013 Midstream Transaction Review.
There is no reason to expect this upward trend to
wane in the next several years as the pool of midstream
assets continues to grow in response to shale play expansion
According to the IHS review, midstream assets, which
include gas and oil gathering and processing facilities
and pipelines as well
as oil tankers, LNG vessels and diversified holdings,
reached $62 B from 54 deals with values exceeding $10
million of which 14 of these deals were at the
multi-billion dollar level.
MLPs were responsible for nearly two-thirds of midstream
total transaction value and 7 of the 10 largest deals in
2013. Drop-down transactions that moved assets from
midstream operating companies to MLPs as a tax-advantage
strategy were the major contributors to the 2013
The largest midstream deal in 2013 was Spectra Energy
Corp.s $11B drop-down sale of its remaining US
pipeline and storage assets to Spectra Energy Partners LP.
Kinder Morgan Inc. also dropped down $1.7 B in diversified
midstream assets it acquired in 2011 from El Paso to Kinder
Morgan Energy Partners LP to generate cash to pay down debt
associated with the acquisition.
Total gathering and processing transaction value rose to a
five-year high in 2013 and accounted for 45% of the total
global midstream deal value in 2013. These transactions
increased 28% year-over-year, with 47% of the total deal
value contributed by six corporate-level deals.
MLPs acquired more than $27 B of the nearly $28 B in gas
and oil gathering and processing assets to increase
distributions to their limited partners. These transactions
were spread over 12 US shale plays.
Said Pross, MLPs used the M&A market to rapidly
expand their geographic footprint in developing shale plays
or to gain operational synergies by adding assets in
locations where they already operate.
While the number of MLPs continues to grow, the IHS report
noted, several are emerging as dominant players in the
sector through multiple asset acquisitions or significant
corporate mergers. Energy Transfer Equity LP has been very
active in midstream sector M&A, particularly since
2011, and contributed almost 20% of total midstream
transaction value in 2013.
Its largest transaction in 2013 was the $5.5 B agreement by
its partially owned Regency Energy Partners LP to merge
with PVR Partners. It also sold $3.8 B in assets from its
earlier Southern Union and Sunoco acquisitions to its
affiliated Energy Transfer Partners. Crestwood Energy
Partners LP and Inergy Midstream entered into a $2.2 B
merger agreement. The deal created a combined MLP to be
called Crestwood Midstream Partners LP, with an expanded
portfolio of midstream services and an enterprise value of
about $8 B.
Kinder Morgan Energy Partners LP also expanded its
portfolio of midstream services in 2013 by entering into
the tanker business, agreeing to acquire two tanker
companies that transport crude and refined products within
the US market. The $962 million cash deal was struck by
affiliates of the Blackstone Group and Cerberus Capital
Pross said Integrated oil companies (IOCs) have also
been active in midstream M&A, divesting midstream
operations to free up capital for upstream investment or
spinning off midstream operations into an MLP.
Repsol sold its non-North American liquefied natural gas
(LNG) business to Shell for $5.4 B as part of its plan to
divest assets to reduce debt following the nationalization
of YPF, and to fund expanding upstream operations. The
transaction allowed Shell to further solidify its dominance
in the global LNG market by expanding its geographic
Total S.A. continued its $15 B to $20 B asset sale program
to fund upstream development with a $3.3 B agreement to
sell its French gas transport and storage business, TIGF,
to a consortium led by Italian midstream company Snam.
Other announced midstream divestments included QEP
Resources plans to spin off its midstream unit, QEP
Field Services Company; and Devon Energys
announcement that it plans to form a publicly traded
midstream MLP by combining its midstream assets with
Crosstex Energy in a $4.8 B transaction. The selection of
the Trans-Adriatic Pipeline (TAP) to transport production
in Azerbaijan to markets in Europe
led several global IOCs,
including BP and Total, to exercise their options to
acquire interests in the pipeline.
Private equity firms were also active in the midstream in
2013, acquiring over $1 B in assets, and investing more
than $2 B in capital.
Said Pross, We expect midstream transaction value to
remain at high levels for several years as the universe of
assets grows with the build-out of the US midstream grid,
as IOCs and exploration and production companies spin off
assets into separate entities to free capital, and as shale
plays continue to be developed on a global basis in areas
that lack sufficient midstream infrastructure.