Pipeline giant Kinder Morgan Energy Partners will spend nearly $1 billion to move into the tanker business after agreeing to buy two companies that ship oil between U.S. ports, the companies said.
Kinder Morgan said last week it will buy American Petroleum Tankers and State Class Tankers from affiliates of private equity firms The Blackstone Group and Cerberus Capital Management for $962 million in cash.
The tankers, which are permitted to transport crude oil between U.S. ports, will expand Kinder Morgan’s ability to move oil throughout the country.
This will be a new area of business for the Houston-based company, which currently has a stake in or operates 54,000 miles of pipelines and 180 terminals.
“This is a strategic and complementary extension of our existing crude oil and refined products transportation business,” said John Schlosser, president of Kinder Morgan’s terminals segment. “Product demand is growing and sources of supply continue to change, in part due to the increased shale activity. As a result, there is more demand for waterborne transportation to move these products.”
The tankers each will have a capacity of 330,000 barrels, although some of the vessels are still under construction.
“We are purchasing tankers that provide stable fee-based cash flow through multiyear contracts with major credit-worthy oil producers,” Schlosser said.
American Petroleum Tankers’ fleet includes five tankers, with an average age of four years, making it one of the youngest fleets in the industry, Kinder Morgan said. State Class Tankers is building four vessels, which will be delivered in 2015 and 2016.
The existing vessels from American Petroleum Tankers generate about $55 million in annual earnings before interest, taxes, depreciation and amortization, Kinder Morgan said.
Kinder Morgan will invest an additional $214 million to complete construction of the State Class Tankers vessels. When all vessels are completed and in operation, Kinder Morgan expects the tanker business to generate about $140 million in annual earnings before interest, taxes, depreciation and amortization, the company said.
Business, Pages 64 on 12/29/2013