Energy Transfer: BANGL Pipeline Dropped From WTG Midstream Acquisition (NYSE:ET)

Largely missed by the broader monetary markets, Vitality Switch (NYSE:ET) put out a press launch updating markets on its pending WTG Midstream acquisition. The BANGL Pipeline was not going to be included, with the acquisition value dropping in type by $175mm. A paltry sum when in comparison with the bigger buy value and with steering for distributable money circulation progress per share remaining intact, it’s simple to see why the market glossed over this. However for me, it’s a blow to the deal from a non-financial perspective, and I feel it additionally doubtless implies that MPLX (MPLX) has some fascinating plans at work.

The BANGL Pipeline

BANGL was not talked about closely within the authentic press launch, but it surely was one thing I spoke about within the recap on the WTG Midstream deal privately (see “Vitality Switch: WTG Midstream Motivations“). I feel it is value speaking about pure gasoline liquids (“NGLs”) markets extra closely quickly and the dynamics between the most important hub within the Midwest – Conway – and the ever outstanding Mont Belvieu and smaller Sweeny hubs, however what’s necessary about BANGL is that it was designed to dodge processing and fractionation in any respect three.

Earlier than stepping into that although, we have to start out with what BANGL’s possession construction is. It is a three way partnership between MPLX, privately held WhiteWater Midstream, WTG Midstream, and Rattler Midstream (now a part of Diamondback Vitality). All of those events have a proper of first supply (“ROFO”) provision within the enterprise, which means that WTG Midstream must take into account affords from the opposite BANGL companions earlier than unilaterally accepting the deal. We have been speaking about provisions like this not too long ago, reminiscent of with the Hess Company (HES) deal, however keep in mind that may be a proper of first refusal (“ROFR”); not ROFO. Since BANGL is being excluded, we all know that one of many three remaining events purchased that 20.0% stake.

The shortage of a press launch from MPLX or Diamondback Vitality may sign that it was privately held WhiteWater that bought that stake, but it surely’s extra doubtless that it was MPLX and the small dimension was sufficient for administration to not warrant placing out a submitting. BANGL was initially an entirely MPLX idea, pitched as a approach for Permian producers to ship Y grade (or uncooked, blended NGLs) from Texas to export markets with no cease at Mont Belvieu. As a substitute, MPLX wished to construct fractionators in Texas Metropolis the place it has a big presence, in the end transferring purity merchandise like ethane and propane to its personal deliberate export terminal domestically. The pandemic derailed that plan, however instances change. Demand has greater than recovered domestically and internationally, and MPLX and the three way partnership companions have begun the method of reviving the system, albeit at a smaller scale. They’re additionally years away, as MPLX has not even obtained permits but for its deliberate fractionation and export facility – by no means thoughts reaching closing funding resolution (“FID”). As a substitute, for now, BANGL ships its volumes on EPIC Midstream’s Y Grade Pipeline, with volumes ending up at third-party fractionators in Robstown or Sweeny.

Whereas Vitality Switch is continuing with the WTG Midstream acquisition with out it, I do view this as a loss. Buying BANGL was a strategy to become involved, albeit as a minority proprietor, as a stakeholder in a brand new LNG export hall. Senior management has spoken very often about getting extra scale on the export aspect for hydrocarbons, and with Lake Charles LNG mired in controversy and Blue Marlin in a tricky race with three different crude export services, new belongings are powerful so as to add to the portfolio. So, in case you take a rosy view, it could have been a strategy to domesticate a relationship with MPLX, maybe back-ending into shopping for an curiosity in its (very early) deliberate NGL export facility at Galveston Bay. Or, in case you’re a believer in shrewd company ways, as minority proprietor Vitality Switch would have been aware about materials private data on the plans of MPLX et al in the case of growing this new community – belongings that may compete with Nederland the place Vitality Switch is constructing substantial NGL infrastructure on website (ship docks, refrigeration, fractionation) or at Mont Belvieu the place it owns round 25.0% share of fractionation capability – a hub BANGL goals to bypass.

Takeaways

We’ll be taught extra on this throughout Q2 convention calls and SEC filings, the place we’ll be taught precisely who exercised the ROFO (MPLX and Diamondback will disclose in 10-Q filings, if not throughout the quarterly press releases). MPLX has not talked a lot about its plans for Texas Metropolis in recent times, however with allowing exercise occurring within the background and with this transaction going down, we’d see some chatter. Vitality Switch, outspoken as at all times, doubtless will discipline questions on the BANGL exclusion and the way it views the NGL markets in Texas going ahead.

Editor’s Be aware: This text discusses a number of securities that don’t commerce on a significant U.S. trade. Please pay attention to the dangers related to these shares.