Shell unit offers to buy rest of pipe operator for US$1.6b

[NEW YORK] A unit of Shell offered to buy the rest of its pipeline affiliate for about US$1.6 billion in cash, dealing another potential blow to the master limited partnership (MLP) model once popular in the energy industry.

According to the non-binding, preliminary proposal, Shell Pipeline Company would pay the other owners in Shell Midstream Partners US$12.89 per unit of the pipeline operator, the equivalent of the closing price for Feb 10. Shares of the MLP jumped as much as 6.75 per cent after the announcement.

Once a popular partnership structure, the number of MLPs has dwindled over the past few years, with companies such as BP and Phillips 66 also recently moving to roll up their sponsored pipeline operations.

Spinning out pipeline businesses into separately listed MPLs used to be a well-trodden path for companies to attract capital, but the structure has lost the favour of investors since the crude-market crash of 2014 to 2016 and a change to US tax policy that pummeled MLP stock prices.

Shell and its affiliates own roughly 69 per cent of Shell Midstream Partners. The board of directors of the MLP's general partner will appoint a conflicts committee to review, evaluate and negotiate the takeover proposal, the company said in a statement. BLOOMBERG