Tag Archives: MLP

Phillips 66 to takeover Phillips 66 Partners

Phillips 66 has agreed to buy its publicly-traded MLP partnership, Phillips 66 Partners for $3.4 billion in an all-stock deal. This continues the recent trend of MLP’s being brought back in-house.

The partnership was originally spun off in July 2013. At the end of last year, Phillips 66 owned 74% of the common units of the partnership, and controlled the general partnership that managed the MLP. 98% of the revenues of the MLP were generated from Phillips 66.

Phillips 66 signaled back in February that it was considering a takeover of the MLP.



Companies spinning off their midstream assets into a separate master limited partnership was all the rage about 10-15 years ago. It was sold to retail investors as a high-yield, low risk play. Unfortunately that proved not to be the case, as many entered the energy downturn in late 2014 too highly leveraged. That led to distribution cuts and the sector fell out of favor. (The Phillips MLP has not cut its dividend since it has been a public company).

In addition, in some cases, the retail unitholders suffered at the hands of the controlling general partner.  The tax reform legislation passed in 2017 also reduced the tax benefits that MLPs receive.

The transaction is expected to close in the first quarter of 2022.

Phillips 66 MLP acquisition – press release

 

 

Returns on MLP stocks has been poor

Good article in Bloomberg on the recent performance on two MLP index funds. One of the two funds contains solely MLP’s and has dropped by 30% over the past 3 years. The other, which contains some non-MLP’s has performed better (up 9%).

Many investors thought they were buying boring, safe yield stocks, not realizing that many MLP’s have significant risk/exposure to oil & gas prices and volumes. 

https://www.bloomberg.com/gadfly/articles/2016-09-21/mlps-what-do-you-think-you-re-buying