Wednesday, April 30, 2014

Energy Transfer Partners to Sell Carlyle Group Gasoline to West Texans?

Energy Transfer Partners announced the purchase of Susser Holdings, merging two convenience store and gasoline distribution operations.  Susser is Texas based and has Stripes convenience stores.  ETP is heavy on the East Coast and includes Sunoco.

On October 5, 2012, ETP completed its merger with Sunoco. On September 8, 2012, Sunoco completed the exit from its Northeast refining operations by contributing the refining assets at its Philadelphia refinery and various commercial contracts to PES, a joint venture with The Carlyle Group. Sunoco also permanently idled the main refining processing units at its Marcus Hook refinery in June 2012. The Marcus Hook facility continued to support operations at the Philadelphia refinery prior to commencement of the PES joint venture. Under the terms of the joint venture agreement, The Carlyle Group contributed cash in exchange for a controlling interest in PES. In exchange for contributing its Philadelphia refinery assets and various commercial contracts to the joint venture, Sunoco retained an approximate 33% non-operating noncontrolling interest. The fair value of Sunoco’s retained interest in PES, which was $75 million on the date on which the joint venture was formed, was determined based on the equity contributions of The Carlyle Group. Sunoco has indemnified PES for environmental liabilities related to the Philadelphia refinery that arose from the operation of such assets prior the formation of the joint venture. The Carlyle Group will oversee day-to-day operations of PES and the refinery. JPMorgan Chase will provide working capital financing to PES in the form of an asset-backed loan, supply crude oil and other feedstocks to the refinery at the time of processing and purchase certain blendstocks and all finished refined products as they are processed. Sunoco entered into a supply contract for gasoline and diesel produced at the refinery for its retail marketing business.

The announced strategy included:

Entry of the Sunoco brand into Texas and neighboring states presents opportunities for additional margins through expansion of dealer and distributor channel.
Susser sells nearly every brand of gasoline other than Sunoco, supposedly under long term contracts.  How might those change over time?  Could Texans be fueling up with Carlyle Group gasoline? Consider Carlyle's history with Petroplus, a European refinery.  Carlyle made huge money flipping Petroplus in 2007.  The debt bloated firm struggled until 2012, then collapsed under the weight of its PEU debt.  That story has a familiar ring.

Energy runs in cycles.  Both ETP and The Carlyle Group believe they have tailwinds.  Their gain would likely be our pain.