Phillips 66 PSX, a leading U.S.-based refining player, has announced a major acquisition involving the Ares-backed midstream business EPIC NGL. The company has signed an agreement to acquire EPIC Y-Grade GP, LLC and EPIC Y-Grade, LP in an all-cash transaction totaling $2.2 billion. PSX mentioned that the deal is expected to be immediately accretive to its earnings per share (EPS) and strengthen its presence in the natural gas liquids (NGLs) market.
EPIC Y-Grade GP and EPIC Y-Grade own multiple subsidiaries and assets, including long-haul NGL (natural gas liquids) pipelines, fractionation facilities and distribution systems. NGLs are a category of hydrocarbons that are extracted from natural gas. The commodity can be used as feedstock in petrochemical plants, and for various other purposes like heating and cooking.
Phillips 66 aims to expand its Permian Basin NGL value chain by acquiring these key assets. Furthermore, EPIC NGL’s extensive infrastructure should enable PSX to offer extensive flow assurance to the producers, providing them with reliable service, reaching key fractionation sites near Corpus Christi, Sweeny and Mont Belvieu, TX.
Phillips 66 has expressed its confidence regarding the acquisition, stating that the deal is expected to generate attractive returns exceeding the company’s hurdle rates. A hurdle rate is essentially the minimum acceptable return that a company expects to earn on any investment.
EPIC NGL’s business includes two fractionators with a capacity of 170,000 barrels per day (bpd) near Corpus Christi. In addition, the business consists of nearly 350 miles of purity distribution pipelines and an NGL pipeline spanning approximately 885 miles with a capacity of 175,000 bpd. The pipeline assets connect the production from the Delaware, Midland and Eagle Ford basins to fractionation facilities and PSX’s Sweeny Hub.
The business is currently in the process of expanding its pipeline infrastructure. It plans to increase its pipeline capacity to 225,000 bpd and has even approved a second expansion of the capacity to 350,000 bpd. However, these expansion plans are not expected to bring any change to Phillips 66’s announced capital program for 2025.
Also, EPIC NGL has added a third fractionation facility to its expansion plans that could enhance its fractionation capabilities and increase it up to 280,000 bpd. The assets are expected to complement PSX’s existing asset base as they connect the production from the prolific Permian Basin to the Gulf Coast refiners and petrochemical firms. The assets are also well connected to export markets, expanding Phillips 66’s connectivity to global markets.
PSX currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the energy sector are TechnipFMC plc FTI, Sunoco LP SUN and Oceaneering International OII. TechnipFMC and Sunoco currently sport a Zacks Rank #1 (Strong Buy) each, while Oceaneering International carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
TechnipFMC is a leading manufacturer and supplier of products, services and fully integrated technology solutions for the energy industry. The company’s total backlog witnessed a high of $14.7 million in the third quarter of 2024, indicating an 11.1% increase from the previous year’s level. This growing backlog ensures strong revenue growth for FTI.
Sunoco LP is one of the largest distributors of motor fuel in the United States. The partnership distributes fuel to independent dealers, commercial customers, convenience stores and distributors. Its current distribution yield is greater than that of the industry's composite stocks, providing unitholders with consistent returns.
Oceaneering International delivers integrated technology solutions across all stages of the offshore oilfield lifecycle. The company is a leading offshore equipment and technology solutions provider to the energy industry. Its proven ability to deliver innovative, integrated solutions supports ongoing client retention and new business opportunities, ensuring steady revenue growth.
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