Kinder Morgan enters Jones Act tanker ownership

Kinder Morgan Energy Partners (KMP) has acquired five US Jones Act tankers, plus four newbuildings, for around $962 mill.

The US-based pipeline concern confirmed that it has entered into a definitive agreement to acquire American Petroleum Tankers (APT) and State Class Tankers (SCT) from affiliates of The Blackstone Group and Cerberus Capital Management for $962 mill in cash.

APT’s fleet consists of five medium range Jones Act qualified product tankers, each with 330,000 barrels of cargo capacity. With an average vessel age of about four years, the APT fleet is one of the youngest in the industry.

Each of APT’s tankers is operating on long-term timecharters with counterparties, which include major integrated oil companies, major refiners and the US Navy. The timecharters have an average remaining term of around four years, with renewal options to extend the initial terms by an average of two years.

APT’s vessels are operated by Crowley Maritime Corp, which is a leading operator and technical manager in the US product tanker industry.

SCT has ordered four MR Jones Act qualified product tankers, each with 330,000 barrels of cargo capacity. The vessels are scheduled to be delivered in 2015 and 2016 and are being constructed by General Dynamics’ NASSCO shipyard.

Upon delivery, the SCT vessels will be go on long-term timecharters with a major integrated oil company. Each of the timecharters has an initial term of five years, with renewal options to extend the initial term by up to three years.

KMP will invest approximately $214 mill to complete the construction of the SCT vessels.

“This is a strategic and complementary extension of our existing crude oil and refined products transportation business,” said John Schlosser, president of KMP’s Terminals segment. “Product demand is growing and sources of supply continue to change, in part due to the increased shale activity. As a result, there is more demand for waterborne transportation to move these products. We are purchasing tankers that provide stable fee-based cash flow through multi-year contracts with major credit worthy oil producers.”

“Blackstone and Cerberus are pleased to have founded and built American Petroleum Tankers into a market-leading Jones Act tanker company,” said Sean Klimczak, senior managing director at Blackstone. “We have enjoyed our partnership with APT’s management team and wish them continued success with Kinder Morgan in this next phase of APT’s growth.”

The transaction, which is subject to standard regulatory approvals, is expected to close in the first quarter of this year, at which time it will be immediately accretive to cash available to KMP unit holders.

APT currently generates about $55 mill of annual EBITDA. After completion of construction of the four SCT vessels, KMP expects combined annual EBITDA of around $140 mill, which is an EBITDA multiple of 8.4 times.

The general partner of KMP, Kinder Morgan Inc. has agreed to waive its incentive distribution amounts of $16 mill in 2014 and $19 mill in 2015 and $6 mill in 2016 to facilitate the transaction.

KMP is a leading pipeline transportation and energy storage company and one of the largest publicly traded pipeline limited partnerships in the US. It owns an interest in, or operates more than 54,000 miles of pipelines and 180 terminals.

Kinder Morgan Inc is the largest midstream and the fourth largest energy company in the US with a combined value of about $105 bill. It owns an interest in, or operates more than 82,000 miles of pipelines and 180 terminals.