October 6, 2011 [OPIS] - Some 2011 transactions for petroleum terminals suggest that the old means of valuing oil storage -- in terms of dollars per shell barrel -- have temporarily been tossed asunder.
A number of private equity firms are intent on making investments in the “middle” of the energy supply chain, and some producers are intent on acquiring logistics that may pay off handsomely if export opportunities continue to grow, or huge regional price differences separate portions of the country.
The latest deal to turn heads came this week, as well-heeled midstream gas and NGL company Targa Resources purchased two petroleum storage facilities for a combined $127 million. Targa bought a 758,000-bbl terminal in Tacoma, Wash., from Sound Refining as well as a 505,000-bbl terminal in Baltimore from Chevron. The purchase price for the deal was put at $127 million, which equates to a number of about $100 per barrel of tankage.
Until this year, Targa was not an active participant in the products terminal segment. But in March, the company purchased the Channelview Refined Products and Crude Terminal through its subsidiary, Coast Energy. Prior to the purchase, that terminal was primarily used as a lube oil processing facility for eight to nine years by owner Flex Tank Systems.
Channelview has some 544,000 bbl of storage capacity, so with the Tacoma and Baltimore deals, Targa now has over 1.8 million bbl of storage, and has indicated that it will look for more. The 1.8-million-bbl figure still pales compared to its holdings in natural gas and NGL, where it has a net storage capacity of about 64.5 million bbl. Targa has a market capitalization value of nearly $3 billion, so the investment is a small portion of its overall business.
The most recent deals led to speculation that Targa might take a page out of Buckeye’s playbook and look to market product around its logistics. But a company spokesperson told OPIS that it will concentrate on fee-based businesses that generate steady and predictable cash flow with no commodity risk. Some market watchers believe that the company could eventually move into gasoline blending, or look to set up export capability for the three U.S. properties.
Executives in the Master Limited Partnership segment say that storage tank counts are no longer the primary asset that one looks at in valuing potential logistics purchases. One critical element of the new model is that terminals with proximity to rail lines (particularly those suitable for rail hubs) are on the top of consolidators’ lists.
There are numerous terminals still available for sale in virtually every region of the country. ExxonMobil, Motiva, and Citgo have yet to divest some non-core products terminals, and Chevron still has some facilities on the block that were designated for sale in 2010.
