Shell Midstream Partners LP, the first MLP to be created by one of the major integrated oil companies, went public on Oct. 28 and rallied 45 percent on its first day of trading.
We had highlighted the initial public offering (IPO) as an excellent buy and added the stock to our MLP Portfolio when the energy sector sold off on Dec. 1. (See What to Buy in the Selloff.)
The publicly traded partnership’s sponsor, Royal Dutch Shell (LSE: RDSA, RDSB; NYSE: RDS A, RDS B), has embarked on an effort to monetize non-strategic assets and expects to complete US$14 billion to US$15 billion worth of divestments by the end of 2015.
New CEO Ben van Beurden initiated this restructuring after the international oil company announced fourth-quarter 2013 earnings that fell about US$2 billion short of analysts’ consensus estimate.
Management attributed this shortfall to soaring capital expenditures for finding and developing new oil and gas resources; the company’s exploration and production bill hit US$42.6 billion this year–a huge jump from US$26.3 billion in 2011.
Royal Dutch Shell has already written down the value of its shale gas properties in the US because of the depressed price of this commodity. And the firm shelved plans to build a US$20 billion plant on the Louisiana’s Gulf Coast that would covert natural gas into liquid fuels.
Creating a vehicle to monetize its US midstream infrastructure will enable the energy behemoth to achieve a higher valuation for these assets, which previously had been lumped into its Americas Upstream and Americas Downstream operating segments.
Shell Midstream Partners’ initial asset base comprises interests in four crude-oil and refined-product systems:
This impressive initial asset base doesn’t take into account Royal Dutch Shell’s other midstream infrastructure in North America, which would be potential candidates to drop down to Shell Midstream Partners.
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In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on Sep. 27, 2022