This article was originally published by TheStreet on March 24, 2014
By Sarfaraz A. Khan, Research assistant: Gohar Yousuf
NEW YORK (TheStreet) -- Oiltanking Partners (OILT) is a little-known master limited partnership, or MLP, poised for long term growth.
NEW YORK (TheStreet) -- Oiltanking Partners (OILT) is a little-known master limited partnership, or MLP, poised for long term growth.
Oiltanking, with a market cap of nearly $3 billion, provides terminaling, storage and transportation services to other energy companies. Although its shares are currently looking expensive, they will likely continue going higher due to ongoing expansion work and a favorable business environment that will fuel its growth.
Oiltanking's units have risen by 21% year to date and was dropping 1.2% to $75.41 on Monday.
Oiltanking was listed just a couple of years ago. It is a subsidiary of the German company Oiltanking, which is the world's second-biggest independent tank storage provider. The group operates 73 terminals in 22 different countries, including seven in the U.S.
Oiltanking's biggest strength is its high quality asset base which includes its Houston and Beaumont facilities. Both facilities are equipped with deep-water ship and barge docks and 22 million barrels of active storage capacity. Nearly 99% of the company's active capacity is currently under contract.
The two facilities are connected to nearly two dozen refining, production and storage facilities at the Gulf Coast and Cushing. Moreover, the Houston facility also serves as an export facility for refined petroleum products.
Oiltanking's Houston facility is the backbone of its operations. It is one of the biggest third-party terminaling facilities on the Houston ship channel and one of the biggest LPG marine export terminals in the world. The Houston facility has two terminals, Houston and Appelt.
Moreover, OIltanking has a strong and diverse customer base. Two of its biggest customers are Enterprise Product Partners (EPD) and Exxon Mobil (XOM), which accounted for 29% and 9% of its 2013 revenues respectively.
OIltanking usually engages with these customers through long-term, inflation adjusted contracts that have minimum volume commitments. For its services, Oiltanking charges storage and throughput fees. Oiltanking usually gets approximately 60% of its revenues from storage fees and 40% from throughput fees.
Over the last five years, Oiltanking has been able to consistently grow its top and bottom line. Since 2009, the MLP's revenues and earnings have more than doubled.
In thousands, except per share amount
| |||||
2009
|
2010
|
2011
|
2012
|
2013
| |
Total Revenue
|
$100,840
|
$116,450
|
$117,377
|
$135,497
|
$210,950
|
Operating income
|
$43,410
|
$57,662
|
$52,238
|
$64,702
|
$125,500
|
Net income
|
$25,116
|
$37,815
|
$62,397
|
$62,645
|
$117,063
|
Adjusted EBITDA
|
$57,852
|
$68,260
|
$67,530
|
$80,616
|
$145,275
|
Oiltanking witnessed a significant jump in revenues in 2013 from 2012. This was a direct result of the new storage capacity which came in service in 2013, plus an expansion of existing capacity. The company will likely take this growth momentum forward via ongoing expansion work.
Oiltanking is currently aggressively expanding the capacity of its Houston facility through the Appelt expansion project. Meanwhile, the company is investing heavily to ramp up its pipeline network and its dock's capacity. These three projects will drive the company's growth in the coming years.
The massive $275 million Appelt expansion project will significantly enhance Oiltanking's footprint in the Gulf Coast by increasing its capacity by 9 million barrels. Oiltanking is already the leading player in the region. With the Appelt expansion, the company will gradually increase its storage capacity by 32% within the next two years, which will further solidify its position.
Oiltanking will also spend $98 million to develop two new crude oil pipelines that would connect Oiltanking's Houston facility with Crossroads Junction. Crossroads is where TransCanada's (TRP_) Gulf Coast pipeline Houston-lateral ends, and where Royal Dutch Shell's (RDS.A_) HoHo pipeline begins.
Through this expansion, Oiltanking's customers will have access to refining plants in Texas and Louisiana via the HoHo pipeline and the highly anticipated Keystone XL pipeline via TransCanada's pipeline. If and when that happens, Oiltanking's terminals will have access to these lucrative routes.
The company is expecting completion of these pipelines by the end of the first quarter of 2015.
Meanwhile, Oiltanking, in partnership with Enterprise, is currently developing a new dock and is improving infrastructure facilities at its existing dock for $44 million. The expansion work is expected to be completed by the end of the current year.
The two companies are working on exclusivity basis. Oiltanking provides vessel-based LPG import and export services exclusively to Enterprise, while Enterprise will exclusively use Oiltanking's facilities on the Gulf Coast. Their agreement covers a period of 50 years starting from February 2014.
Moreover, Oiltanking is gearing up for a dropdown from its general partner within the next 12 months. The management has said that the asset will likely be the Texas City terminal, which is akin to Beaumont, with deep-water docks.
Oiltanking benefits from a favorable business environment. The Energy Information Administration states that the macroeconomic environment will sustain the current levels of crude oil production through 2040. This means that Oiltanking will have ample opportunities for growth.
Moreover, the demand for LPG exports remains extremely strong. Therefore, companies like Enterprise and Targa Resources ( (TRGP_)) are betting big on the LPG's export prospects. Oiltanking could be one of the biggest beneficiaries of this trend due to the location of its LPG marine export terminal. The company's assets in the Gulf Coast region, with deep-water access and a large distribution network, should provide significant growth opportunities in the long term.
