uploads///Organic Expansion Capital

Why Sunoco Logistics Revised Its 2015 Capital Expenditure Targets

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Bakken SXL transaction

In the previous part, we looked at Sunoco Logistics’ (SXL) organic projects that are expected to come online in 2015–2016. In this part, we’ll look at the amount of organic expansion capital required for these projects and how SXL will finance the expansion capital. But let’s first see why Sunoco Logistics revised its capital expenditure target for 2015.

On May 6, 2015, SXL announced that it has reached an agreement with Energy Transfer Partners (ETP) to acquire a 30% stake in the Bakken Pipeline project. The project is owned jointly by ETP and Phillips 66 (PSX). It will enhance the total takeaway capacity to 470,000 barrels of crude oil per day out of the Bakken–Three Forks production area in North Dakota. The oil will be transported to key refinery and terminaling hubs in the Midwest and Gulf Coast, including SXL’s Nederland terminal. The ultimate takeaway capacity is expected to be 570,000 barrels per day.

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Capital expenditure revision

Sunoco Logistics (SXL) will share the proportionate capital expenditure in the Bakken Pipeline project. This led SXL to revise its capital expenditure for 2015. SXL estimated its growth in capital expenditure to be $2.0 billion in the last quarter. The company has revised that to $2.5 billion in the latest quarter, as you can see in the above graph. SXL expects to finance its share of capital expenditure in the Bakken Pipeline project with 50-50 debt and equity. Kinder Morgan (KMI), one of SXL’s biggest competitors, expects to spend $3.56 billion in growth capital projects in 2015.

Capital financing

SXL raised $629 million through an overnight equity offering and $142 million from an ATM (at the money) equity offering in the first four months of 2015. The company also upsized its credit facility from $1.5 billion to $2.5 billion and extended its maturity to 2020. SXL plans to use the capital raised for working capital and funding organic projects. It expects to continue using the ATM program opportunistically to fund its organic projects in order to maintain a target debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of 3.4x to 4.0x and an investment grade rating.

Key ETFs

Investors can get exposure to Sunoco Logistics (SXL) by buying individual units listed on the stock exchange or through ETFs such as the Alerian MLP ETF (AMLP). SXL alone constitutes ~4.55% of AMLP.

For a post earnings overview of other MLPs, refer to our energy MLPs Earnings Overview page. We’ll continue to cover more post earnings releases.

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