Morningstar

Why BP's MLP Plans Are Inconsequential

While the move allows the integrated firm to efficiently monetize midstream assets while largely retaining control, it also represents a fraction of the company’s value.

Securities In This Article
BP PLC ADR
(BP)

We view the decision positively, but as largely inconsequential, leaving our fair value estimate and moat rating unchanged. While it allows BP to efficiently monetize midstream assets while largely retaining control, it also represents a fraction of the firm’s value.

Based on 2018 pro forma EBITDA estimates provided in the initial filings, and using the current valuation for Shell’s MLP Shell Midstream Partners, or SHLX (10 times 2018 consensus EBITDA) as a comp, we estimate BPMP's enterprise value at about $1.3 billion. That value represents about 1% of BP’s current market capitalization. Similarly, SHLX, which went public in 2014, only represents about 2% of Shell’s market capitalization.

Furthermore, according to filings, BP only plans to issue $100 million worth of limited partner units, leaving it owning the majority of BPMP’s limited partner interest. Even if that figure is revised upward, and assuming BP only retains a 50% equity interest in BPMP, cash proceeds from the transaction will only be about $650 million by our estimates. The idea that a large integrated firm creating an MLP is not a “needle-mover” has likely kept other U.S. integrateds from pursuing a similar strategy.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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