MIDSTREAM NEWS

Magellan petitions to create marketing affiliate

On November 14, 2016, Magellan Midstream Partners LP filed a petition with FERC to create a Marketing Affiliate in order to move crude oil out of the Permian. Magellan is requesting that the Commission act on the petition by no later than February 13, 2017.

Sunoco Logistics to acquire Energy Transfer Partners

Sunoco Logistics Partners LP and Energy Transfer Partners LP (ETP) have agreed to merge. Sunoco Logistics will acquire ETP by SXL in a unit-for-unit transaction that was approved by the boards of directors and conflicts committees of both partnerships and is expected to close in the first quarter of 2017, subject to receipt of ETP unitholder approval and other customary closing conditions.

Under the terms of the transaction, ETP unitholders will receive 1.5 common units of SXL for each common unit of ETP they own. This equates to a 10% premium to the volume weighted average pricing of ETP's common units for the last 30 trading days immediately prior to the announcement of the transaction.

As SXL will be the acquiring entity, the existing incentive distribution rights provisions in the SXL partnership agreement will continue to be in effect, and Energy Transfer Equity LP will own the incentive distribution rights of SXL following the closing of the transaction.

As part of this transaction, ETE has agreed to continue to provide all the incentive distribution right subsidies that are currently in effect with respect to both partnerships.

The transaction is expected to be immediately accretive to SXL's distributable cash flow per common unit and is also expected to allow the combined partnership to be in position to achieve near-term distribution increases in the low double digits and a more than 1.0x distribution coverage ratio.

The transaction is expected to provide significant benefits for SXL and ETP unitholders as the combined partnership will have increased scale and diversification across multiple producing basins and will have greater opportunities to more closely integrate SXL's natural gas liquids business with ETP's natural gas gathering, processing and transportation business. SXL and ETP expect that the transaction will allow for commercial synergies and costs savings in excess of $200 million annually by 2019.

The transaction is also expected to strengthen the balance sheet of the combined organization by utilizing cash distribution savings to reduce debt and to fund a portion of the growth capital expenditure programs of the two partnerships.

ETP and SXL have spent approximately $15 billion in organic growth capital over the past several years, and these expenditures, combined with the completion of other major capital projects currently in progress, are expected to continue to generate strong distributable cash flow growth.

The combined partnership is expected to be the second largest MLP as measured by enterprise value.

At the closing of the transaction, the CEO, chief commercial officer, president and CFO of the combined partnership will be Kelcy Warren, Mackie McCrea, Matt Ramsey and Tom Long, respectively, and it is expected that Mike Hennigan and other members of the SXL management team will continue in leading management roles of the combined company with the SXL business headquartered in Philadelphia.

The news comes on the heels of the strategic joint venture between Sunoco Logistics Partners LP and ExxonMobil announced November 9. Per the agreement, the companies will form Permian Express Partners LLC to combine certain of their key crude oil logistics assets. Sunoco Logistics will contribute its Permian Express 1, Permian Express 2 and Permian Longview and Louisiana Access pipelines. ExxonMobil will contribute: its Longview to Louisiana and Pegasus pipelines; Hawkins gathering system; an idle pipeline in southern Oklahoma; and its Patoka, Illinois terminal.

Concurrent with the transaction, ExxonMobil and its affiliates will enter into a preferred provider agreement with the joint venture. Sunoco Logistics will be the majority owner and operator of the joint-venture's assets. Upon closing, ownership in Permian Express Partners LLC will be approximately 85% SXL and 15% XOM.

Whiting Petroleum to sell North Dakota midstream assets

Whiting Petroleum Corp. has entered into purchase and sale agreements to sell its 50% interest in its Robinson Lake natural gas processing plant and associated natural gas gathering system located in Mountrail County, North Dakota and its 50% interest in its Belfield natural gas processing plant and associated natural gas, crude oil and water gathering systems located in Stark, Billings and Dunn Counties, North Dakota. From April through September 2016, these plants had average daily throughput of 132 MMcf per day.

An affiliate of Tesoro Logistics Rockies LLC has agreed to purchase the assets for $700 million, pending regulatory approval. Whiting's share of the sale price would be approximately $375 million. The transaction is expected to close in the first quarter of 2017.

James J. Volker, Whiting's Chairman, President and CEO, commented, "We expect this sale to further strengthen our balance sheet and provide us with additional financial flexibility to invest for growth in Whiting's top tier producing assets in the Williston and DJ Basins. This sale aligns with our ongoing strategy to divest non-core midstream assets and focus capital in the company's highly productive upstream business."

Midstream divestiture has been discussed by Whiting management for a year or more so the deal itself was not a surprise, noted Brian T. Velie of Capital One Securities after the announcement. The price, however, "did surprise to the upside and more than doubled the $180MM of value we were modeling. The extra cash in the door increases our NAV by $1 to $13/share," Velie said. Proceeds will delever the balance sheet, "taking our YE17 net debt to EBITDA estimate from 4.8x to 4.3x. YE18 balance sheet leverage drops in similar fashion from 4.0x to 3.6x. A positive update that addresses WLL's most significant headwind (leverage) to a more significant degree than we were expecting to be possible from such a sale," he said.

Genoil to develop, construct projects in Russia, Chechnya

Genoil Inc., a publicly traded clean technology engineering company for the petroleum industry, has signed a $50 billion Letter of Intent to develop oil fields and construct clean technology upgraders, refineries and pipelines in Russia. The project will incorporate Genoil's clean technology hydroconversion (GHU) process, and mark the first time that Genoil has provided a complete integrated project, from the development of oil fields to the production of cleaner fuels. The scope of the project is to produce 3.5 million barrels per day.

Genoil's hydroconversion process improves upon the existing data-verified Fixed Bed Reactor technology, which is widely used worldwide. Currently, 85% of all desulphurization is taking place worldwide via hydroconversion. Genoil's investment into hydroconversion projects can significantly increase the desulphurization, demetalization and denitrogenization conversion rates, and increase operating efficiencies by 75%.

In addition to the development of the oilfields and construction of the technology, the parties involved will also explore linking this new project to existing pipeline networks in the region. Financing will be provided in full from Chinese banks to the Russian companies involved.

As agreed in the LOI, Genoil will be responsible for the design and construction of six million tonnes per year of new refinery capacity in Chechnya. To facilitate this, Genoil will organize a large consortium of Chinese engineering and services companies to provide the necessary support and project guarantees. In addition, Genoil will arrange for a Chinese insurance company to insure the project.

The LOI has been signed by the President of the Board of Directors of Grozneft, a former official in the administrative department of the Russian Federation. The Russian Government and the Ministry of Fuel and Energy of the Russian Federation, as well as other required ministries and departments will give their support to the project to ensure timely completion. The project will be listed in a trade agreement, pact or cooperation agreement between Russia and China.

Genoil will be the master contractor in charge and in control of the project. Fuel produced from the projects will be exported to China through secured long-term contracts of up to 30 years.

ExxonMobil to increase Beaumont polyethylene capacity by 65%

ExxonMobil plans to add a new production unit at its Beaumont polyethylene plant that will increase capacity by 65% – or approximately 650,000 tonnes per year – to meet growing demand for high performance plastics.

Construction of the new unit has begun at the plant, where current polyethylene production capacity is one million tonnes per year. Startup is expected in 2019.

"The availability of vast new supplies of US shale gas and associated liquids for feedstock and energy is a significant advantage that enables expansion to meet strong global demand growth in polyethylene," said Cindy Shulman, vice president of ExxonMobil's plastics and resins business.

The Beaumont project builds on supply advantages created by ExxonMobil's expansion of its Mont Belvieu Plastics Plant in Texas, where two similar polyethylene units are being added. Combined, this multi-billion-dollar investment will increase the company's US polyethylene production by 40%, or nearly two million tonnes per year, making Texas the largest polyethylene supply point for ExxonMobil.

The Beaumont expansion project will employ 1,400 construction workers and create 40 permanent jobs upon completion, as well as generate $20 billion in economic activity in the first 13 years of operation based on 2015 Impact Data Source estimates.

ExxonMobil's previously announced investments at Beaumont include expansion of the refinery's crude refining capacity in 2015 and, earlier this year, construction of a new unit to increase domestic supply of ultra-low sulfur gasoline and diesel.

Howard Energy Partners secures $353M for Nueva Era Pipeline project

Nueva Era Pipeline LLC, a Howard Midstream Energy Partners LLC (HEP) subsidiary, has closed on $353.3 million in project financing for the construction of the Nueva Era pipeline project. A 50-50 joint venture between HEP and Mexico-based energy and services firm Grupo CLISA, the Nueva Era pipeline project will connect HEP's existing Webb County Hub in South Texas directly to Monterrey, Nuevo León, Mexico. The banks that provided financing for the Nueva Era project include MUFG, Santander, Societe Generale, Sumitomo Mitsui Banking Corp., and CaixaBank.

Construction activities began earlier this year on the approximately 200-mile, 36- and 30-inch Nueva Era pipeline, which will provide seamless transportation service for approximately 600 million cubic feet per day of natural gas (expandable to 900 million cubic feet per day), connecting producers in South Texas directly with end-users in northern Mexico. The Comision Federal de Electricidad, Mexico's state-owned electric utility, is the anchor shipper on the Nueva Era project, having committed to transport 504 million cubic feet of natural gas per day on the system for a 25-year term, to help fuel combined-cycle power plants in Escobedo and Huinalá, near Monterrey. The Nueva Era pipeline also offers natural gas transportation services to private shippers on an open access basis. The project is expected to be completed and in service in the second half of 2017.

Latham & Waktins LLP, Creel, García-Cuéllar, Aiza y Enríquez and Canales Dávila, S.C. served as the company's legal advisors on the transaction, with Milbank, Tweed, Hadley & McCloy LLP and Galicia Abogados serving as the principal legal advisors of the lending group.

San Antonio-based Howard Midstream Energy Partners LLC, dba Howard Energy Partners, is an independent midstream energy company, owning and operating natural gas gathering and transportation pipelines, natural gas liquids processing plants, rail facilities, liquid storage terminals, deep-water port facilities and other related midstream assets in Texas and Pennsylvania.

Dominion Midstream to acquire Questar Pipeline

Dominion Midstream Partners LP and Dominion Resources Inc. have come to an agreement in which Dominion Midstream will acquire Questar Pipeline LLC from Dominion for $1.725 billion, including indebtedness of Questar Pipeline.

Dominion Midstream intends to finance the acquisition various means. One is through the company's assumption of Questar Pipeline's $435 million of outstanding indebtedness. The company also plans equity offerings, including an underwritten public offering of Dominion Midstream common units representing limited partner interests in the partnership; commitments received from a group of institutional investors led by Stonepeak Infrastructure Partners for $137.5 million of common limited partner units and up to $600 million of convertible preferred units representing limited partner interests in the partnership that are to be issued privately, and common units and preferred units that are to be issued to Dominion. The company is also anticipating a $300 million term loan provided by a group of banks, allowing Dominion Midstream to repay an existing term loan currently provided by Dominion.

Upon closing, the acquisition of Questar Pipeline – which owns and operates Federal Energy Regulatory Commission-regulated natural gas transmission and storage assets in Colorado, Utah and Wyoming – will be immediately accretive to Dominion Midstream's distributable cash flow and supportive of the partnership's intention to grow distributions to unitholders at a compounded annual growth rate of 22% per year. It is also expected to more than double Dominion Midstream's existing adjusted EBITDA.

Dominion plans to use proceeds from the Questar Pipeline dropdown into Dominion Midstream to retire outstanding debt.

The Dominion Midstream GP's Conflicts Committee was advised by Richards, Layton & Finger PA and Evercore Group LLC. This transaction is not subject to additional regulatory or other approvals.

Martin, Vanderhider Join Noble board

Noble Midstream Partners LP has appointed Martin Salinas, Jr. as an independent director on the company's Board of Directors, joining Hallie A. Vanderhider. Vanderhider has served as an independent director since Noble Midstream's IPO in September. With the addition, Noble's board consists of six directors, including two independent directors.

Salinas currently serves as the CEO of Phase 4 Energy Partners Inc. He previously served as CFO of Energy Transfer Partners LP. Vanderhider serves as managing partner of Catalyst Partners LLC. Prior, she worked at Black Stone Minerals Company LP, serving most recently as a member of the board of directors and as president and COO.

PAA completes $750M senior notes offering

Plains All American Pipeline LP has completed an underwritten public offering of $750 million aggregate principal amount of 4.500% senior unsecured notes due December 15, 2026, at a public offering price of 99.716% with a yield to maturity of 4.535%. Total net proceeds of the offering were approximately $741.3 million. The Partnership intends to use the net proceeds from the offering to repay outstanding borrowings under its senior unsecured revolving credit facility and commercial paper program and for general partnership purposes.

J.P. Morgan Securities LLC; BNP Paribas Securities Corp.; Merrill Lynch, Pierce, Fenner & Smith Incorporated; Wells Fargo Securities, LLC; BBVA Securities Inc.; DNB Markets, Inc.; and SMBC Nikko Securities America, Inc. acted as joint book-running managers of the offering.