The Daley Note: June 23, 2023
Canadian midstream company Gibson Energy (GEI:TSX) is acquiring 100% of the membership interests in South Texas Gateway (STG), the second-largest export facility in Corpus Christi, for $1.1B in cash.
Calgary-based Gibson reports a valuation of ~9x EV/2024E EBITDA for the deal, indicating ~$122MM in expected annual EBITDA for the terminal. The multiple is slightly higher than recent terminal transactions. In 2021, Enbridge (ENB) acquired Moda Midstream, owner of the largest export dock at Corpus Christi (Ingleside Energy Center) and a 30% interest in Cactus II Pipeline, for $3B. That deal carried a reported 8x multiple. The same year, Magellan Midstream (MMP) sold a 25% stake in MVP Terminalling, a marine terminal near Houston, for $270MM. We calculated an 8x multiple for that transaction based on our Blueprint Financials.
Buckeye Partners (BPL; private) owns 50% of STG and is the terminal operator. Other owners include Marathon Petroleum (MPC; 25%) and Phillips 66 (PSX; 25%). According to East Daley's Crude Hub Model, the facility is permitted to load up to 1 MMb/d, but exports are limited to a capacity of 800 Mb/d due to draft restrictions. The restrictions will be lifted once a dredging project at the Port of Corpus Christi is complete. According to GEI, the facility achieved record terminal volumes of 670 Mb/d in March.
Volumes into STG are fed primarily by Gray Oak Pipeline and EPIC Crude, as well as a smaller connection with Harvest Midstream. These pipelines run relatively full; EDA estimates they have aggregate utilization of 89%, which could limit volume growth for STG (see figure). However, any expansions to these pipes could add upside. 
East Daley recently reviewed options to expand crude oil pipelines into Corpus Christi. ENB owns 58.5% of Gray Oak and recently announced it is exploring a 200 Mb/d expansion of the pipeline. EPIC Crude has the potential to expand by 300 Mb/d, according to Federal Energy Regulatory Commission (FERC) filings. GEI noted a project is currently underway to connect the terminal to the 670 Mb/d Cactus II pipeline (98% utilized), which would add additional volumes.
Unlike the previous STG owners and some nearby competitors, Gibson has no direct connectivity to the terminal. The company owns some gathering lines and loading terminals in the Permian Basin, and ships neat bitumen by rail to USD Group’s Port Arthur terminal. GEI may be able to rail neat bitumen from its Hardisty, AB terminals to STG, which could provide another source of growth.
As far as downside risks, Enterprise (EPD) and ENB’s SPOT terminal could steal volumes if the project is built, but we expect the earliest potential in-service date would be 2026. In addition, SPOT would primarily take volumes from export terminals located more inland that face channel congestion and cannot load very large crude carriers (VLCCs), so SGT would still be a competitive option for shippers.
The companies expect to close the transaction in 3Q23, marking a major entry point for GEI into the increasingly competitive landscape of US Gulf Coast export docks. - Ajay Bakshani, CFA & AJ O’Donnell Tickers: BPL, ENB, EPD, GEI, MMP, MPC, PSX.
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