BP Pipeline Spin-off Aimed at Increased Cash Flow

Energy

Published: July 19, 2017 8:29 am

Last Updated: January 12, 2020 10:00 am

The U.S. subsidiary of BP plc (NYSE: BP) said on Tuesday that the company is considering a plan to create and spin-off a master limited partnership (MLP) of its U.S. midstream operations. The initial assets being considered for the spin-off include the company’s pipelines for transporting crude oil, refined products, and natural gas in the Midwest and on the Gulf Coast. BP expects to make a decision by the end of this year.

According to BP’s U.S. website, the company owns about 3,500 miles of pipeline and transports more than 1.3 million barrels a day of petroleum and natural gas. That’s a pretty small total when compared with the 50,000 pipeline miles of Enterprise Products Partners and the 84,000 pipeline miles claimed by Kinder Morgan.

But what a spin-off would do is generate some sorely needed cash for BP. At the end of the first quarter the company reported cash and equivalents of $23.8 billion, a sizable war chest, to be sure. Operating cash flow of $4.4 billion did not include amounts related to the 2010 Gulf of Mexico oil spill. Including that, operating cash flow totaled $2.1 billion.

BP plans to spend $15 to $17 on capital projects this year and expects to divest $4.5 to $5.5 billion in assets. BP also expects to pay $4.5 to $5.5 billion for the 2010 oil spill this year.

First-quarter divestments totaled just $300 million from a single sale of a North Sea pipeline, so the company needs to pick up the pace. And selling midstream assets has not been easy. BP failed to reach a deal with Enbridge last year for a portion of BP’s Gulf of Mexico offshore system.

If BP does spin off its U.S. pipelines, the British firm would be the spin-off’s general partner, own 100% of the incentive distribution rights, and own a majority of the limited partnership units of the new company. Currently the company does not separately report midstream activity, so its not possible to make a guess as to what the pipeline company may be valued at.

One thing is certain though: it’s been a tough year so far for pipeline operators. The Alerian MLP Index is down about 4% for the year to date, compared to a gain of nearly 10% in the S&P 500.

ALERT: Take This Retirement Quiz Now (Sponsored)

Take the quiz below to get matched with a financial advisor today.

Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests.

Here’s how it works:
1. Answer SmartAsset advisor match quiz
2. Review your pre-screened matches at your leisure. Check out the advisors’ profiles.
3. Speak with advisors at no cost to you. Have an introductory call on the phone or introduction in person and choose whom to work with in the future

Take the retirement quiz right here.