Local Oil Pipeline Firm to Be Acquired
A Houston pipeline company said Monday that it would buy Long Beach-based Pacific Energy Partners in a nearly $2-billion deal that further consolidates the crucial business of moving and storing gasoline and oil.
The acquisition by Plains All American Pipeline would combine Pacific Energy’s operations in California, the Rockies and Canada with the Texas company’s holdings, which include one California pipeline and an extensive network of facilities in Texas and the Midwest.
The acquisition is the latest in a string of deals that has reshuffled ownership of the guts of the U.S. petroleum infrastructure -- the pipelines, terminals and storage tanks that are vital to the flow of crude oil and fuel.
Since 1998, Plains All American has purchased 42 distribution systems or whole companies as major oil companies shed those smaller businesses to focus on finding, extracting and refining crude oil. Along the way, Plains has become one of the nation’s largest oil pipeline concerns.
“It’s a good deal for both companies,” said Robert Lane, vice president at investment firm Sanders Morris Harris, which doesn’t own shares of either Plains or Pacific Energy. “They have a lot of assets that cover geographic areas where the other one doesn’t really have a presence.”
The consolidation in the unglamorous world of pipes and tanks follows a wave of deals that reorganized Big Oil and put U.S. refineries in the hands of fewer operators -- a key factor, consumer activists contend, in rising fuel prices. Industry consultant and critic Tim Hamilton said he was less worried about the combinations in this acquisition wave.
“They’re buying all these divested oil company assets ... and as long as they are going to a third party that isn’t a refiner, then you don’t have the concern as much that someone will try to manipulate the use of the pipelines,” Hamilton said.
Plains All American Chief Executive Greg Armstrong said the combined company would initially save $30 million in annual costs, growing to $70 million in later years. Both Plains and Pacific Energy are structured as master limited partnerships, which don’t pay taxes and distribute most of their cash flow directly to shareholders.
“The asset bases of the two companies complement each other nicely and are well positioned to benefit from long-term trends in the energy sector, namely the increasing volumes of foreign imports of crude oil, refined products and [liquefied natural gas] and the increasing value of the storage assets,” said Pacific Energy Chief Executive Irvin Toole, who had previously announced plans to retire.
Pacific Energy owns more than 4,500 miles of pipelines. The company is strongest in California, where its pipelines carry crude oil from Kern County and offshore oil platforms to refineries in Los Angeles and Bakersfield.
Last year, Pacific Energy paid $470 million to Valero Energy Corp. for assets that included portside storage tanks and distribution terminals in Los Angeles and the San Francisco area. Pacific Energy also has proposed a $300-million crude oil import facility in the Port of Los Angeles.
Plains All American operates more than 15,000 miles of crude oil pipelines and handles an average of 3 million barrels of crude oil a day through its terminals, storage tanks, pipelines and trucks.
Under the terms of the deal, Plains would pay $700 million in cash and issue $990 million worth of new units in the combined company, based on Plains’ closing price Monday. Pacific Energy holders would get 0.77 of a newly issued Plains unit for each of their Pacific Energy units -- a 10.6% premium based on Friday’s share price for the California company. The company also would assume about $623 million in debt.
The sale was driven by LB Pacific, an entity formed last year by Lehman Bros. to buy the 25% stake in Pacific Energy held by Denver billionaire Philip Anschutz. LB Pacific wanted to cash in its investment, said Gerry Tywoniuk, Pacific Energy’s chief financial officer.
The deal, expected to close by the end of the year, requires approvals from the Federal Trade Commission, Canada’s National Energy Board and several state commissions.
Shares of Pacific Energy traded as high as $35.06, but fell back to close at $32.99, up 90 cents Monday. Plains shares closed down $1.45 at $44.65.
