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Shell Midstream Partners

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No. 10: Pipeline spinoff gets off to a robust start

Robert Grattan, Houston Chronicle: June 18, 2016

Royal Dutch Shell owns one of the United States’ essential pipeline networks, transporting oil and gas from the seafloor of the Gulf of Mexico to its refineries and beyond.

But for decades, that network was a secondary interest for investors, most of whom focused on Shell’s global drilling and refining operations. So in late 2014, Shell set out to push those pipelines out of the background by spinning off Shell Midstream Partners as a public company, in which Shell holds a controlling interest.

The Houston-based company is structured as a master limited partnership — or MLP — and it is designed to slowly purchase stakes in pipelines from its parent, the international oil giant, while paying its own investors a steady and growing dividend.

The company’s 2014 initial offering raised $920 million from investors eager for the steady returns the pipelines offered. It was the largest IPO of a master limited partnership in more than a decade. Shell Midstream used those funds and others it raised to buy about $1.9 billion in pipelines from its parent company last year.

“2015 was a busy year for us,” said John Hollowell, CEO of Shell Midstream. “We’ve done four acquisitions.”

Those acquisitions helped boost Shell Midstream’s revenue from $65.9 million in the first quarter of 2015 to $76.7 million in the final quarter of the year. The company employs roughly 680.

Shell Midstream’s largest advantage is the size and deep pockets of its parent company, Hollowell said. The parent company’s heft means Shell Midstream can count on a having a steady supply of pipelines to buy and revenues to expand its business, despite low prices that have threatened production and other pipeline companies.

“Royal Dutch Shell breeds a certain amount of credibility,” Hollowell said.

Holloware plans to stay active in acquisitions in 2016, and ultimately plans to buy another $1.9 billion or so in assets. In the long term, Shell Midstream expects to diversify beyond oil and gas pipes into terminals and other chemical transportation.

“Shell Midstream is off to a great start,” Hollowell said.

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