Beleaguered Oil Producers Haven't Felt Need to Sell Midstream Assets

By Alison Sider

When the price of crude fell off a cliff, oil producers were supposed to topple, too. Companies that own pipelines, storage terminals and oil refineries have been waiting to catch them, or at least some of their assets, with outstretched arms and open wallets.

So far, it hasn't worked out that way.

"There doesn't seem to be a lot of distress prices out there right now," Phillips 66 Chief Executive Greg Garland said during a conference call Thursday. "We might say we were a little surprised by that as we think that through, but we just don't see any compelling cases out there today."

Companies that develop oil and natural gas fields often also own infrastructure, such as pipelines that hook wells up to larger transportation networks. Many energy mavens anticipated that these types of assets, which broadly fall into a category known in the industry as midstream, would be the first to be sold as oil producers scrambled to raise cash.

"When we saw the crude prices fall, we thought that could potentially put more midstream assets on the markets," said Pam Beall, a senior vice president at Marathon Petroleum Corp. "We've seen a little bit of that, but not a lot."

Refiners have latched on to energy transportation, which brings in steady, predictable fees, as a way to expand their businesses without increasing their exposure to volatile fuel prices. In recent years, Marathon, Phillips 66, PBF Energy Inc., Valero Energy Corp and other refinery operators have launched tax-advantaged master limited partnerships to manage their expanding networks of pipelines, fuel storage tanks, and oil-train terminals.

These partnerships rely on acquisitions to keep paying out cash flow to investors. Many of those deals stay in the family. Marathon, for example, announced Thursday that it plans to sell its marine operations to its partnership, MPLX. But companies like Marathon have also said they want their partnerships to get big enough to buy businesses from other companies.

So far, however, few energy companies have had to part with their pipelines, turning instead to the equity and debt markets to raise money. Companies like Whiting Petroleum, Antero Resources Corp. and Energy XXI Ltd. have issued additional shares and notes in recent months.

That has prompted some grumbling from companies that were hoping to go on a shopping spree, including pipeline giant Kinder Morgan Inc.

Chief Executive Richard Kinder said recently that Wall Street is "backing companies that otherwise might be more in need of selling midstream assets that we would be interested in."

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