Private Equity and The Joneses

Kinder Morgan Energy Partners, L.P. (NYSE: KMP) announced that it has entered into a definitive agreement to acquire American Petroleum Tankers (APT) and State Class Tankers (SCT) for $962 million.

So why Kinder Morgan (KM) wants to integrate marine trade into their energy midstream portfolio ?

Kinder Morgan (KM) is a company used to deal with long-term regulated investments and low commodity price risk exposure.

S/D Curves are pushing JA Tanker spot rates higher.

JA tankers demand functions

JA Tankers S/D infographics
© 2014 -The Trade, Shipping and Finance Wizard

 

If Jones Act Tankers are the sweet spot in the long-term why the Blackstone Group and Cerberus Capital Management, two Hedge Fund behemoths are selling ? A medium-range tanker with a capacity of 50,000 DWT costs as much as $120 million to build domestically, more than 3 times the the cost of a new construction in a foreign shipyard and high daily operating expenses.

American Phoenix U.S Flag MR tanker hauling dirty and refined oil products along the U.S coastline sub chartered to Exxon by Koch at a rate ­greater than 100,000$/day on a 24 months term c/p according to Bdp1 Consulting Ltd.    Photo Credit: shipspotting.com

However it is cash flow that matters and Private Equity and The Joneses by Karatzas Marine Advisors & Co. provides generous insights about JA valuation and the deal.

As per SEC filings, direct vessel daily operating expenses stand at about $20,000 pd, but taking into account management fees and other expenses, the daily cost is higher by several thousand dollars. The five APT tankers are grossly expected to generate $60 mil EBITDA per annum, implying about $60,000 per day T/C for each of the four SCT tankers (again, with firm five year fixed charter to investment grade oil major.  – Shipping Finance by Karatzas Marine, Equity, Debt, Leasing, Advisory & Restructuring.

Reading:

https://jacquessimon506.wordpress.com/2013/04/21/jones-act-the-impacts-on-freight-and-energy-markets/

-The Trade Shipping and Finance Wizard

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3 thoughts on “Private Equity and The Joneses

  1. An interesting move. It has been a lousy year for some shipowners and the whole market is in a state of lux. We are seeing some pretty fundamental changes to the pattern of trade. The prospect of the US becoming a net exporter in the future, the now likely approval of the Gateway pipeline and the expansion of the Panama Canal suggest there are further big changes to come. Who will want old Panamax tankers and will they be converted to FPSOs? Whoever thought we would see oil going from Russia to the Far East across the top of the world.

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  2. these are implied markets rates for different transportation modes basis U.S; 2013; 1000 miles ;cost/bbl

    Rail-cars: 10$
    Pipe: 4$
    Reg tankers exports 1$
    Us flag tankers coastal trade 5.1-6$

    Pipe from Mid-cont to USGC+US flag to USEC = 16$
    Crude by rail from Midcont to USEC=10$

    Brent/WTI lower than 7$ don’t expect commodity traders to move crude from USGC to USEC by ship, better options may be available…

    Expansive acquisition cost for a small fleet but backed by DCFs in a healthy market. Was the opportune timing for Hedge Funds, selling into strength, buying into weakness.

    One promising avenue is carrying oil cargoes from houston through Panama and California by ships. KMI has cancelled the $2B Freedom Pipeline from West-Texas to Califonia due to oil producers/refiners under-booking.at 5$/bbl tariff http://www.rbnenergy.com/the-kinder-morgan-texas-california-crude-pipeline-part-2

    At this moment, KMI has switched its focus on ships to beat Crude by rail in California. (or IBs from Blackstone and Cerberus Capital Management have pitched the idea).

    Pipelines and Tankers owning are twins businesses, they are two business lines where Oil Majors are disengaged (often totally), they required too much working capital, cash that an oil company sees better maximized elsewhere.

    -Refiners/Traders don’t own U.S Flags, they have only little commercial interest to do so (or only if they really need them).
    -Oil Majors also pushto repeal the JA and the Energy Exports Ban. On the USEC KMI is betting against their customers: Big Oil. Example: Colonial owned by Koch, Shell.
    -A non-said is that Internationally built & owned products tankers are in direct competition with MR LR1 U.S Flags… In 12-18 months new supply of foreign ships will it the market and so forth 2015,2016…

    =>With RFS, california low carbon fuel standards, JA freight rates, Traders more than often prefer to export the Brent/WTI in refined products and they do it with foreign vessels ( and possibly at cheaper freight rates). Because of possible softer rates, risk of low utilization rates, high operations costs, and high acquisition costs, I will say that it’s risky for further asset depreciation. Owners (KMI in the present case) must fix for long term and that’s the case now, all vessels are fixed under long-term C/Ps.

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  3. Seariver Maritime (ExxonMobil Corp) has Two new “liberty Class” crude oil tankers that are to be built at Aker Philadelphia Shipyard, due to be delivered in 2014, to replace the Kodiak and Sierra that were built 35 years ago.

    Do you know Trade Shipping and Finance Wizard if Kodiak and Sierra will be retired and taken out of service? Or will they be sold to another operator? -George

    Excellent question.
    Kodiak and Sierra are to be send to the breaker. (35 years of services) = no residual value because you can’t recuperate the Jones Act title and transfer it to a new ship.The only way I see to get a JA is this exception, you recover a foreign flag vessel in the U.S Waters and it is a “constructive total loss”, you then fix it in a U.S yard so you can make it US with all Jones Act privileges. I hope my answers will help you.

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