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Plains All American Pipeline doubles in size with $330 million acquisition of Link Energy
Ray Tyson Petroleum News Houston Correspondent
Deal-minded Plains All American Pipeline, with help from Microsoft co-founder and billionaire Paul Allen, has agreed to acquire the North American oil and pipeline operations of Houston-based Link Energy in a complex deal valued at $330 million.
Allen’s investment arm, Vulcan Capital, said it committed $40 million to Plains All American as part of a $100 million private placement to help finance the acquisition, which would double the amount of pipeline miles currently held by Plains in the United States and Canada.
The Link Energy deal represents Allen’s first direct venture into the midstream energy sector, preceded by Vulcan’s controversial bid for Plains Resources, a small oil and gas producer that happens to own a sizeable chunk of rapidly growing Plains All American.
The next step in Vulcan’s “investment strategy” would either be to close the Plains Resources transaction, which requires shareholder approval, or “to continue financing growth and acquisition opportunities” in the midstream sector, Vulcan spokesman David Capobianco said March 31.
The Vulcan Group, an affiliate of Vulcan Capital, kicked up a fuss among Plains Resources shareholders in February when the board of directors accepted Vulcan’s $16.75 per share bid for the publicly traded company. The board apparently failed to notify shareholders beforehand that it had received a proposal from another investment group led by Pershing Square and Leucadia National.
Tied into the Plains Resources deal is John Raymond, son of ExxonMobil Chairman Lee Raymond, a member of the Vulcan Group who also serves as president and chief executive officer of Plains Resources and sits on the board of Plains All American. Plains Resources owns 44 percent of the general partnership of Plains All American, a publicly traded master limited partnership, and a 24 percent aggregate ownership interest in Plains All American.
“We believe that the management team at Plains All American is among the premiere management teams in the midstream sector, and we are pleased to have the opportunity to participate in the continued success of PAA,” Vulcan’s Capobianco said. Link has roughly 7,000 miles of lines Link’s oil and pipeline business consists of roughly 7,000 miles of active oil pipeline and gathering systems in the United States and Canada, more than 10 million barrels of crude oil storage capacity, a fleet of some 200 owned or leased trucks and approximately 2 million barrels of oil line fill and working inventory.
Plains All American operates about 7,000 miles of gathering and mainline pipelines, primarily in Texas, Oklahoma, California and Louisiana and in the Canadian provinces of Alberta and Saskatchewan. It also is involved in marketing, terminaling and storage operations.
Under the terms of the agreement, Plains All American would make a cash payment to Link of about $273 million and cover unspecified “liabilities, obligations and commitments” related to Link’s assets and business activities.
In addition, Plains would assume about $49 million of other liabilities and net working capital items, and expects to incur about $8 million of third-party transaction, closing and integration costs and other items. The total purchase price was estimated to be about $330 million. The partnership said it received the necessary regulatory approvals and expected to close the transaction April 1. Plains says Link assets complement its assets “The Link assets are complementary to our assets in West Texas and along the Gulf Coast,” said Greg Armstrong, Plains All American’s chief executive officer. “Additionally, this acquisition meaningfully expands our footprint in the Rocky Mountain and Oklahoma-Kansas regions.”
Link said it would use proceeds from the sale to repay, redeem and retire about $265 million of debt and to cover transaction expenses of $3.6 million.
Link restructured its business in early 2003 and later sold its ill-performing Gulf Coast liquids and MTBE operations. However, the high debt and costs incurred from the restructuring effort required “costly letters of credit” for most of its business and “constrained our ability to leverage our assets effectively,” said Tom Matthews, Link’s chief executive officer.
“The crude oil business requires a strong balance sheet to compete effectively in today’s marketplace,” Matthews added. “While (the) decision was a tough step, we believe that Plains can better realize the capabilities of our assets. This sale is in Link Energy’s long-term best interest to protect the value of the assets, the needs of our customers, and the jobs of our employees.”
Link employs about 750 people in 17 states and Canada. Its business involves about 240,000 barrels per day of lease crude gathering and about 400,000 barrels per day of oil movement on its pipelines. The transaction specifically includes the oil businesses of Link Energy Limited Partnership, Link Energy Pipeline Limited Partnership and Link Energy Canada Limited Partnership, which own and operate all of Link Energy’s pipelines in the United States and Canada.
As a part of the agreement, Link Energy said it agreed to settle all outstanding litigation with Texas New Mexico Pipe Line Co., a wholly owned subsidiary of Shell Pipeline Co. Earlier this year Plains All American closed a $158 million deal with Shell Pipeline, which gave the company a 22 percent interest in the Capline Pipeline System and a 76 percent stake in the Capwood Pipeline System.
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