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American Midstream Inks Deal to Sell Propane Related Assets

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Houston-based pipeline partnership, American Midstream Partners, LP recently inked an agreement to divest its propane marketing and services business to a Netherlands-based, family owned energy supplying company, SHV Energy N.V. for $170 million.

Deal Details

With the all-cash transaction, American Midstream will sell its 100% interest in Pinnacle Propane’s 40 service locations, several other assets, which include Pinnacle Propane Express’ cylinder exchange business and related logistic assets and the Alliant Gas utility system. American Midstream expects the deal to be completed by the third quarter of 2017.

Reasons for the Divestiture

The sale of its propane marketing and services business is in line with American Midstream’s strategy to simplify its business profile and generate capital.  The partnership is preparing to grow its distributable cash flow and create balance sheet flexibility.

The proceeds from the transaction will be deployed in its core operating areas of East Texas, Gulf of Mexico and Permian Basin. American Midstream is shifting its focus to its core assets because it believes reallocation of its capital to areas with greater long-term value will help the partnership to achieve competitive advantage and increase its unit value.

For the same reason, the partnership acquired the Viosca Knoll system in the Gulf of Mexico for approximately $32 million from Genesis Energy, L.P. (GEL - Free Report) in Jun 2017. American Midstream funded the Viosca Knoll initially with borrowings under its senior secured credit facility. The amount will be repaid from the proceeds of the SHV Energy transaction.

We would like to remind investors that American Midstream closed an all-stock merger deal with JP Energy Partners LP in Mar 2017 worth $2 billion to increase its core assets.

About the Partnership

American Midstream is a growth-oriented limited partnership formed to provide critical midstream infrastructure that links producers of natural gas, crude oil, NGLs, condensate and specialty chemicals to end-use markets. American Midstream’s assets are strategically located in some of the most prolific onshore and offshore basins in the Permian, Eagle Ford, East Texas, Bakken and Gulf Coast.

The partnership’s earnings are expected to plunge 222.9% in the second quarter of 2017. The Zacks Consensus Estimate declined from earnings of 25 cents per unit to a loss of 29 cents per unit for the second quarter in the last 60 days.

Price Performance

American Midstream has lost 24.5% of its value year to date versus 5.8% growth of its industry.

Zacks Rank and Stocks to Consider

American Midstream presently has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the oil and energy sector include Braskem S.A. (BAK - Free Report) and Enbridge Energy, L.P. (EEP - Free Report) . Both these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Braskem’s sales for 2017 are expected to increase 11% year over year. The company’s earnings for the second quarter of 2017 are expected to increase 197%.

Enbridge Energy’s sales for the second quarter of 2017 are expected to increase 13.2% year over year. The partnership delivered an average positive earnings surprise of 38.22% in the last four quarters.

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