Pipeline operator Energy Transfer Partners’ bid to takeover refiner Sunoco for $5.3 billion signals the latest move to seize a chunk of the more lucrative action in liquid shale formations in the United States rather than wait out the depressed market for dry gas.
The deal, which is expected to close in the third or fourth quarter, lays the groundwork for Dallas-based ETP to diversify from its current portfolio of 21,500 miles of natural gas pipelines and 1,500 miles of natural gas liquids pipelines in 10 states, but no crude transportation.
By bringing Sunoco into its fold, ETP will bring on 5,400 miles of crude pipelines and 2,500 miles of refined products pipelines and recalibrate its mix to about 70 percent natural gas and 30 percent liquids.
ETP Chief Executive Officer Kelcy Warren said in a statement that his company has set a goal over the past year of deriving “more of our distributable cash flow from the transportation of heavier hydrocarbons like crude oil, NGLs and refined products.”
Giving an example of how the shifting priorities can work, he told analysts that Sunoco operated an unidentified Texas pipeline decades ago before switching to carry natural gas in 1980.
That pipeline “has access to all the electric infrastructure. It would be very easy to convert. It’s running at very low capacity now and it would be an excellent conduit to take crude from optimal resources to Nederland (on the Texas-Louisiana border), or from Nederland north,” he said.
Warren said other longer pipelines ETP has acquired from Southern Union also lend themselves to crude conversion.
“They’re not needed for the demand of our customers and they’re not necessary,” he said. “So we are exploring converting some of those lines that would go from the Gulf Coast to the Midwest and to other parts of the country,” he said.
Under the terms of the deal, Sunoco will continue with its plan to exit the refining business and continue to see a joint venture with The Carlyle Group to run its 33,000 barrels per day Philadelphia refinery.
Pardy calls for EnCana to make major buy
The swing to liquids production is underscored by Calgary-based gas giant Encana, which unloaded its crude operations two years ago in spinning off Cenovus Energy, but is now scrambling to rebuild and expand its liquids sector.
Greg Pardy, an analyst with RBC Dominion Securities, has even called for Encana to make a “liquids-weighted rifle shot acquisition” to shake things up.
—Gary Park
