Pelican state american petroleum tankers

Pelican State, an APT-owned product tanker. Image: APT

Kinder Morgan Energy Partners, L.P. (NYSE: KMP) has announced a signed agreement today to acquire Jones Act tanker companies American Petroleum Tankers (APT) and State Class Tankers (SCT) from affiliates ofThe Blackstone Group and Cerberus Capital Management.

Kinder Morgan, KMP’s general partner, is North America’s largest midstream energy operator owning an interest in or operating more than 82,000 miles of pipelines and 180 terminals.

The $962 million deal includes five of APT’s medium range (MR) product tankers, each with 330,000 barrels of cargo capacity, as well as four of SCT’s MR tanker newbuilds which are due for delivery from General Dynamics’ NASSCO shipyard by 2016.

APT’s fleet has an average age of about four years and their Crowley-managed vessels are currently operating  on long-term, high quality time charters with major integrated oil companies, major refiners and the U.S. Navy. These time charters have an average remaining term of approximately four years, with renewal options to extend the initial terms by an average of two years.

Upon delivery, the SCT vessels will be operated pursuant to long-term time charters with a major integrated oil company. Each of the time charters has an initial term of five years, with renewal options to extend the initial term by up to three years. Kinder Morgan will invest approximately $214 million to complete the construction of the SCT vessels.

“This is a strategic and complementary extension of our existing crude oil and refined products transportation business,” said John Schlosser, president of KMP’s Terminals segment. “Product demand is growing and sources of supply continue to change, in part due to the increased shale activity. As a result, there is more demand for waterborne transportation to move these products. We are purchasing tankers that provide stable fee-based cash flow through multi-year contracts with major credit worthy oil producers.”

“Blackstone and Cerberus are pleased to have founded and built American Petroleum Tankers into a market-leading Jones Act tanker company,” said Sean Klimczak, Senior Managing Director at Blackstone. “We have enjoyed our partnership with APT’s management team and wish them continued success with Kinder Morgan in this next phase of APT’s growth.”

The transaction, which is subject to standard regulatory approvals, is expected to close in the first quarter of 2014, at which time it will be immediately accretive to cash available to KMP unitholders. APT currently generates about $55 million of annual EBITDA. After completion of construction of the four SCT vessels, KMP expects combined annual EBITDA of approximately $140 million, which is an EBITDA multiple of 8.4 times. The general partner of KMP, Kinder Morgan, Inc. (NYSE: KMI), has agreed to waive its incentive distribution amounts of $16 million in 2014 and $19 million in 2015 and $6 million in 2016 to facilitate the transaction.

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