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Oil export partners prioritize flexible capital in port expansion effort

Private equity's flexibility, coupled with insufficient federal government support, drove investment firm Carlyle Group LP and the Port of Corpus Christi to team up on a proposed export terminal that would bring the world's biggest crude tankers to the U.S. Gulf Coast, representatives from both parties said.

The Port of Corpus Christi has been working on a project with the U.S. Army Corps of Engineers to widen and deepen the Corpus Christi channel to enable the partial loading of very large crude carriers, or VLCCs, by 2021, but Congress has not fully funded the venture's federal share, and the project exceeds the scope that an industry-only effort could achieve.

"I think we are more nimble than industry, and we're able to partner with stakeholders who industry has traditionally struggled to partner with," Carlyle managing director Ferris Hussein said on the sidelines of a March 12 discussion at CERAWeek by IHS Markit. "The Port of Corpus Christi is not in the business of providing capital to an industry player without an intermediary who can provide a solution that the industry player can't, which is the dredging. We're going to spend about $400 million of Carlyle dollars to dredge from 54 to 75 feet. No industry player has lined up to do that."

Port of Corpus Christi CEO Sean Strawbridge pointed to government funding struggles as a key driver for tapping Carlyle.

"The Army Corps of Engineers is one of the most underfunded and unwieldy agencies in the federal government. I blame Congress partly for that," he said during a March 12 discussion. "And yet you look at the president's budget proposal that came out yesterday and the Corps' budget is 31% less than it was the year before."

Lone Star Ports LLC, Carlyle's joint venture with Berry Contracting LP, will lead the Harbor Island terminal's development, while crude pipelines owned by Epic Midstream Holdings LP and Harvest Midstream Co. plan to connect with the Texas Gulf Coast facility to provide more than 1 million barrels of oil per day from Texas' Permian Basin and Eagle Ford shale by late 2020.

Martin Midstream Partners LP plans to work with Lone Star Ports to "provide a single, integrated ... solution" for accommodating VLCCs, according to a December 2018 statement. The agreements with Martin Midstream, Epic Midstream and Harvest Midstream remain subject to definitive documentation, due diligence and final approval by each party.

For now, the Louisiana Offshore Oil Port is the only facility in the U.S. that can handle fully loaded VLCCs, but Carlyle and the Port of Corpus Christi's facility among eight contenders hoping to develop the same capability.

Strawbridge acknowledged that not all of the export projects under development will make it to construction. There is "a lot of confusion in the market right now," he said.