Marathon Petroleum to join Bakken pipeline JV

Marathon Petroleum Corp. (NYSE: MPC) has agreed to participate in the formation of a joint venture to invest in the Dakota Access Pipeline (DAPL) and the Energy Transfer Crude Oil Pipeline (ETCOP) projects, collectively referred to as the Bakken Pipeline system.

MPC agreed to form a joint venture with Enbridge Energy Partners LP Inc. (NYSE: EEP), through wholly owned subsidiaries, to acquire a partial equity interest in the Bakken Pipeline system from a subsidiary of Energy Transfer Partners LP (NYSE: ETP) and Sunoco Logistics Partners LP (NYSE: SXL), which owns a 75% indirect interest in the Bakken Pipeline system. MPC would own a 25% equity interest in the new joint venture with Enbridge. At closing, MPC will own an approximate 9.2% indirect interest in the pipeline system in exchange for its investment of $500 million. Under the terms of an open season, MPC also expects its subsidiary to become a committed shipper on the Bakken Pipeline system.

The Bakken Pipeline system is currently expected to deliver in excess of 470,000 barrels per day of crude oil from the Bakken/Three Forks production area in North Dakota to the Midwest through Patoka, Illinois, and to the Gulf Coast. The Bakken Pipeline system is expected to be ready for service by the end of 2016.

Subject to the closing of the transaction with Energy Transfer and Sunoco, Enbridge and an MPC affiliate have agreed to cancel MPC's transportation services agreement related to the Sandpiper project and liquidate MPC's indirect ownership interest in North Dakota Pipeline Company LLC (North Dakota Pipeline), which would effectively cancel MPC's commitment to fund any further construction costs for that project.

As of June 30, 2016, MPC has contributed $301 million to fund its share of the construction costs for the Sandpiper pipeline project. The closing of an investment in the Bakken Pipeline system and MPC's resulting exit from the Sandpiper pipeline project would result in an impairment review of the carrying value of MPC's investment in North Dakota Pipeline in the third quarter of 2016 that could result in a charge to impair MPC's investment in the project.

In a note Wednesday morning, Cowen and Company analysts said the deal itself is neutral to MPC, but that they “view the active management of the logistics portfolio positively.”

The company “de-risks its pipeline backlog through this transaction, eliminating $200MM incremental spend while gaining exposure to a fully-funded project backed by shippers. At the same time, the company reduces its dropdown backlog by $60MM. While an 8x drop multiple implies a $340MM net value loss for MPC, a lower risk project backlog should translate into a lower MPLX yield that could bridge the gap. Regardless, we see consolidation of Bakken related infrastructure as warranted given current market conditions, as a horizon for production growth from the play continues to be pushed out,” the analysts continued.

MPC's and Enbridge's joint-venture investment in the Bakken Pipeline system is subject to certain closing conditions, and is expected to close in the third quarter of 2016.

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