Delta House Valuation Now Higher Due to Recent BP Thunder Horse Discovery
Estimates Full Value of AMID of at Least $9.00 per Common Unit
HOUSTON, Jan. 14, 2019 (GLOBE NEWSWIRE) -- Craig W. Thomas, a concerned unitholder of American Midstream Partners, LP (“AMID”), encourages the independent directors of AMID (Mr. Peter A. Fassulo, Mr. Donald R. Kendall Jr., and Mr. Gerald A. Tywoniuk) to explore possible claims for the breach in any representations and warranties made by ArcLight Capital Partners, LLC and its affiliates (“ArcLight”) in ArcLight’s sale of its 15.5% stake to AMID in Delta House in September 2017 and JP Energy Partners, LP in March of 2017.
ArcLight sold a 15.5% stake in Delta House to AMID for $125.4 million that within days or weeks of the September 29, 2017 closing saw volumes plummet from 120,000 barrels per day to 60,000 barrels per day on average (page 10 of AMID’s presentation at the Bank of America Merrill Lynch Leveraged Finance Conference (“BOFA Conference”) in December 2018). ArcLight subsequently signed a “Capital Contribution Agreement” in March 2018 to cover the shortfalls from Delta House even though AMID indicated that the volume shortfall was the result of third-party upstream infrastructure that required remediation. Given this odd fact pattern, Mr. Thomas encourages AMID’s independent directors to review every past related-party transaction with ArcLight for potential breaches in representations and warranties, including the JP Energy Partners, LP deal, as the independents should have legal and financial advisors at their disposal.
In addition, Mr. Thomas points the independent directors’ attention to British Petroleum’s (“BP”) January 8, 2019 press release entitled, “BP plans for significant growth in deepwater Gulf of Mexico”. In the press release, BP stated, “Recent BP breakthrough in seismic imaging identifies 1 billion barrels of additional oil in place at Thunder Horse field.” According to AMID’s presentation at the BOFA Conference (page 9), Thunder Horse currently accounts for approximately 175,000 Mcf/day in gathered volumes which likely makes the field the most prolific play in AMID’s offshore assets.
Mr. Thomas believes that if BP’s new discovery is in AMID’s Delta House or Okeanos catchment area, then the value of AMID’s offshore assets has risen as the useful life of the assets has been extended by BP’s discovery. Mr. Thomas believes that any valuation offered by ArcLight for Delta House prior to this announcement is no longer valid as the net present value of these assets is higher after BP’s announcement than it was when ArcLight made its last offer on January 3, 2019.
Mr. Thomas encourages the independent directors to use pro-forma EBITDA for Delta House assuming 135,000 barrels per day in throughput in any assessment of value. On its Q3 2018 earnings call, AMID indicated that Delta House volumes could achieve nameplate capacity of 135,000 barrels per day (versus 120,000 barrels assumed in the BOFA Conference presentation). Mr. Thomas encourages the independent directors and its financial advisors to assume Delta House operating at peak operating capacity in any negotiation on unit price with ArcLight (note that earnings from unconsolidated affiliates increased by $14.2 million in Q3 2018 from Q2 2018 as Delta House recovered from approximately 40,000 barrels to approximately 90,000 barrels per day and “Distributions from Unconsolidated Affiliates” should begin climbing soon).
Mr. Thomas believes that achieving pro-forma leverage below 5x is possible in short order and that resuming a distribution will dramatically increase the common unit price. In the BOFA Conference presentation, AMID indicated it received a “Blended multiple of Marine and Refined Products divestitures approximately 10-12 times” (page 17) which is deleveraging and higher than ArcLight’s proposed valuation. Through AMID’s program of planned divestitures of $350-$400 million, AMID has “Clear sight on target leverage ratio near 4.0 times” (page 4 BOFA Conference presentation). Mr. Thomas believes that AMID therefore has “clear sight” on resuming the distribution, selling assets at 10-12x, and a much higher unit price exiting 2019.
Mr. Thomas concluded, “I see value of at least $9.00 per share assuming $180 million in 2019 EBITDA that includes higher Delta House EBITDA, higher value for Delta House due to BP’s discovery, the harvesting of additional EBITDA from the $85 million in growth capital expenditures completed in 2018, and the option in the 25% stake in Enterprise’s Pascagoula gas plant. My estimate appears conservative as AMID projected $246 million in 2019 EBITDA as recently as February 12, 2018 in Form S-4/A which equates to $215 million in EBITDA after adjusting for the two asset sales at 11x EBITDA.”
Mr. Thomas is a professional investor with more than 15 years of investing experience, including as a portfolio manager and a Director of Research at S.A.C. Capital Advisors and an analyst at Goff Moore Strategic Partners and Rainwater, Inc. He is currently the co-founder of Shareholder Advocates for Value Enhancement (S.A.V.E.) and manages various investment partnerships.
Contact: Craig W. Thomas, craig@savepartners.com