Trolling for cash, BP files for pipe­line IPO in US

Financial Mirror (Cyprus) - - FRONT PAGE - By Paul Au­sick

BP Mid­stream Part­ners L.P. filed a Form S-1 with the U.S. Se­cu­ri­ties and Ex­change Com­mis­sion (SEC) on Mon­day for an ini­tial pub­lic of­fer­ing (IPO) of lim­ited part­ner­ship com­mon units val­ued at $100 mln. The com­pany is be­ing spun out of BP Pipelines (North Amer­ica) Inc., an in­di­rect wholly owned sub­sidiary of BP PLC (NYSE: BP). The new com­pany has ap­plied for a list­ing on the New York Stock Ex­change un­der the ticker sym­bol BPMP.

The new mas­ter lim­ited part­ner­ship (MLP) in­cludes BP mid­stream as­sets in the United States com­prised of about 4,630 miles of crude oil, re­fined prod­ucts, dilu­ent and nat­u­ral gas pipe­line sys­tems that cur­rently trans­port ap­prox­i­mately 2.1 mil­lion bar­rels of oil equiv­a­lent to re­finer­ies, re­fined prod­ucts ter­mi­nals, con­nect­ing pipelines and nat­u­ral gas pro­cess­ing plants. The prospec­tus also notes that BP has sub­stan­tial mid­stream as­sets around the world “that may be can­di­dates for con­tri­bu­tion to [BP Mid­stream Part­ners] in the fu­ture ….”

The fil­ing did not spec­ify the num­ber of com­mon units to be in­cluded in the IPO nor the price per unit. BP Mid­stream Part­ners Hold­ings LLC, a di­rect, wholly owned sub­sidiary of BP Pipelines, will own the gen­eral part­ner in­ter­est and a por­tion of the lim­ited part­ner­ship in­ter­ests in the new MLP.

This spin-off is in­tended to gen­er­ate some sorely needed cash for BP. At the end of the sec­ond quar­ter the com­pany re­ported cash and equiv­a­lents of $23.3 bln, a size­able war chest to be sure. Op­er­at­ing cash flow of $6.9 bln did not in­clude amounts re­lated to the 2010 Gulf of Mex­ico oil spill. In­clud­ing that, op­er­at­ing cash flow to­talled $4.9 bln.

BP plans to spend $15 bln to $17 bln on cap­i­tal projects this year and ex­pects to di­vest $4.5 bln to $5.5 bln in as­sets. In the first half of the year, di­vesti­tures to­talled just $700 mln. BP also ex­pects to pay $4.5 bln to $5.5 bln for the 2010 oil spill this year.

Sell­ing mid­stream as­sets has not been easy. BP failed to reach a deal with En­bridge last year for a por­tion of BP’s Gulf of Mex­ico offshore sys­tem. Mid­stream part­ner­ships have, in fact, had a tough year so far with the Ale­rian MLP In­dex down about 11.6% for the year to date, com­pared to a gain of more than 10% in the S&P 500.

De­spite its chal­lenges, BP con­tin­ues to pay a div­i­dend yield of around 6.7%, a level that some an­a­lysts be­lieve is un­sus­tain­able. Hiv­ing off the mid­stream busi­ness helps in two ways: pulling in a nice chunk of cash at the IPO and re­duc­ing BP’s div­i­dend yield while still main­tain­ing a sub­stan­tial por­tion of the mid­stream busi­ness’ cash flow.

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