TULSA — SemGroup Corp. has agreed to buy an export terminal and storage hub on the Houston Ship Channel in a deal worth about $2.1 billion, the company announced Tuesday.
SemGroup said it will buy the Houston Fuel Oil Terminal Co. and its HFOTCO LLC from investment funds managed by Alinda Capital Partners. The 16.8 million-barrel terminal covers 330 acres and includes five ship docks, seven barge docks and three crude oil pipelines to four refineries.
“This project is the next step in our deliberate Gulf Coast and refinery-facing strategy,” CEO Carlin Conner said Tuesday during a conference call with analysts. “This acquisition gives us a premier foothold on the Houston Ship Channel.”
SemGroup has agreed to pay $1.5 billion at closing, including the assumption of about $785 million in debt. The Tulsa-based buyer said it plans to pay for a portion of the purchase price by issuing Alinda Capital Partners $300 million to $400 million in SemGroup stock priced at $32.30 a share. The deal is expected to close in the third quarter.
SemGroup also has agreed to make a final payment of up to $600 million to Alinda by the end of 2018.
As part of the deal, SemGroup executives said they plan to retain the terminal’s about 125 employees.
SemGroup operates about 1,800 miles of crude oil pipelines, about 10 million barrels of oil storage capacity, eight natural gas processing plants and about 1,600 miles of natural gas gathering lines. Most of the assets are in the Mid-Continent, Rocky Mountains and Canada. Many of those existing SemGroup facilities connect to the Houston terminal.
“We expect that this acquisition will significantly enhance the scale and diversity of our business,” Conner said. “The HFOTCO footprint provides SemGroup the ability to capitalize on broader market trends that continue to support the long-term attractiveness of the Gulf Coast deepwater terminal market.”
The Houston facility for years has exported refined petroleum products. It began exporting crude oil shortly after President Barack Obama lifted the country’s 40-year crude oil export ban in late 2015.
SemGroup executives said Tuesday they will continue with the terminal’s planned expansion, which is expected to add a new ship dock and 1.45 million barrels of crude oil storage by mid-2018.
“This multimodal facility in a world-class port creates new growth paths to serve global commodity markets as well as positioning SemGroup to capture the future trends in exporting crude oil and refined products resulting from the U.S. shale boom,” Conner said.
Following Tuesday’s announcement, Moody’s Investors Service placed the ratings of SemGroup and the Houston terminal company on review for downgrade. Moody’s lists SemGroup with a corporate family rating of B1, which is two notches above the minimum investment-grade rating.
“Despite the strengthening of SEMG’s business profile through the addition of HFOTCO’s stable crude oil and residual fuels terminal business, characterized by take-or-pay contracts with strong counterparties and an advantaged location, pro forma consolidated leverage will spike to near 7.0x at close and is not expected to fall below 6.0x until late-2019 at the soonest,” Moody’s Vice President John Thieroff said in a statement.
SemGroup shares dropped $2.45, or 7.8 percent, Tuesday to close at $28.85 on the New York Stock Exchange.