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Phillips 66 to drop down NGL assets to MLP for $1.3B; NGL market becoming end user-dependent

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Phillips 66 to drop down NGL assets to MLP for $1.3B; NGL market becoming end user-dependent

Inits largest drop-down transaction to date, Phillips 66 Partners LP agreed to acquire 30 crude,refined products and NGL logistics assets from for $1.3 billion.

Theconsideration represents an 8.7x multiple on the forecast full-year 2017 EBITDAfrom the assets of $150 million. Under the deal, Phillips 66 would enter into10-year terminaling and throughput agreements for minimum commitments coveringabout 85% of forecast volumes, according to an Oct. 11 news release.

Theassets include thousands of miles of pipelines and millions of barrels ofstorage capacity, spread across crude pipeline and terminaling systemssupplying Phillips 66's Ponca City, Billings and Borger refineries, as well asrefined products and NGL pipeline and terminal systems that provide transportservices to the refineries plus storage at the Bayway refinery.

Shaleproduction of natural gas liquids started with a supply-push dynamic thatdepended on pipelines to deliver the product to end users. However, the marketis changing to one that is increasingly dependent on the end user in what isbecoming a demand-pull dynamic.

"Onething to realize is that the U.S. NGL business is a supply driven business,"Peter Fasullo, principal at En*Vantage Inc., said at the S&P Global PlattsNGL Conference and Petrochemical Seminar in Houston on Oct. 4. "Whenpeople build gas processing plants, they are really building them to servicethe producer, not so much the market."

Inthe past, supplies have been pushed onto the market and were hopefully absorbedby end users, but the environment is changing due to lower prices, as financialdistress is being experienced by many producers and midstream players.

Thepropane market advanced several cents per gallon in the week ended Oct. 7, astraders focused on the possibility that exports ramp up at the same time thatpotentially cold winter weather begins to emerge. Support also came from theoil market, which strengthened on the potential that OPEC cuts productionfurther.

LoneStar pipeline grade propane at Mont Belvieu, Texas, advanced 7.15 cents totrade at 57.10 cents per gallon in the week ended Oct. 7, while non-LST propanealso gained 7.15 cents to trade at 57.00 cents per gallon. Prices at the hub inConway, Kan., advanced 8.60 cents, and traded at 53.30 cents per gallon.

Inventoriesof natural gas liquids surpassed a 10-month high in July with help from arecord level of ethane stocks. NGL inventories were also boosted by weakness indemand for propane and butane compared to a year ago.

Inventoriesof NGLs rose 18.37 MMbbl in July from the previous month to reach a new recordhigh of 230.15 MMbbl, according to "Supply and Disposition" data fromthe U.S. Energy Information Administration published Sept. 30. The previousrecord was set 10 months earlier in September 2015 at 229.23 MMbbl. Theinventory level was 52.99 MMbbl above the five-year average.

acquireda crude oil and condensate marine terminal project and associated assets inTexas to augment its Gulf of Mexico export services.

Theassets, acquired from PelorusTerminal: Point Comfort, LLC, are composed of 350,000 shell barrelsof storage capacity, truck unloading bays and loading capacity for both inlandand ocean vessels from three docks, according to an Oct. 3 news release.

will acquire certain oil and gas assets, including a 50% stake in CarneroProcessing LLC, from SanchezEnergy Corp., in a $107 million drop-down transaction expected toincrease the company's liquidity.

SanchezProduction will acquire a 50% stake in Carnero Processing for an initialpayment of about $47.7 million in cash and the assumption of the remainingcapital commitments worth about $32.3 million, according to an Oct. 6 newsrelease.

CarneroProcessing is a joint venture between Sanchez Energy and

S&P Global Plattsand S&P Global Market Intelligence are owned by S&P Global Inc.