EPIC! $2.2B Deal Vaults Phillips 66 to Midstream Elite

Phillips 66 (PSX) will buy EPIC Y-Grade’s NGL business for $2.2B in cash. The deal elevates PSX into an elite group of major integrated NGL players and continues a consolidation trend focused on the Permian NGL barrel.

PSX announced the deal last Monday (Jan 6). Phillips will acquire the following assets from EPIC:  

1. An NGL long-haul pipeline connecting Permian Basin supply to Corpus Christi, Sweeny and Mont Belvieu demand markets along the Gulf Coast (see map). The pipeline has a capacity of 175 Mb/d and will be expanded to 350 Mb/d.
2. A 350-mile purity product distribution system that can move purity NGL products bi-directionally between Corpus Christi, Sweeny and Mont Belvieu. The system has a capacity of 450 Mb/d. 
3. Two fractionation units near Corpus Christi with 170 Mb/d of capacity, expandable to 280 Mb/d.  

What We Like About the Deal: This secures PSX’s position as an integrated NGL player alongside Enterprise Products (EPD), Energy Transfer (ET), Targa Resources (TRGP) and ONEOK (OKE). OKE just made one of its own strategic moves by acquiring EnLink Midstream (ENLC). The EPIC assets will nearly double NGL egress capacity for PSX, once the pipeline reaches its expanded capacity.

Another benefit is exposure to more diversified supply sources via G&P interconnections including Matador Resources (MTDR) and Devon Energy (DVN), and downstream connections to BP (60 Mb/d MVC), Exxon (XOM) and LyondellBasell (LYB).  

Areas for Improvement: We believe the $2.2B purchase price yields an EV/EBITDA multiple of about 12x for the latest 12 months. Furthermore, PSX is now short NGL equity barrels with respect to NGL pipeline capacity, which means it is reliant on third parties to direct its NGL plant production to the EPIC Y-Grade and Sand Hills pipelines. 

Speculation City: EDA believes the next move in integration musical chairs is for PSX to target G&P asset systems that feed EPIC and are not already owned by one of the large midstream companies. Four of these systems are in the Delaware and one is in the Midland.

East Daley is hosting a clients-only webinar this Wednesday (Jan 15) at 10 AM MST to look deeper into the PSX-EPIC deal. We will review the systems that could potentially be at play, and the benefits for each under PSX ownership. Reach out to learn more. – Rob Wilson, CFA and Ajay Bakshani, CFA Tickers: DVN, ENLC, EPD, ET, LYB, MTDR, OKE, PSX, TRGP, XOM

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