U.S.oil major Chevron Corporation (CVX) has agreed to sell its ownership interest in the U.S. oil products pipeline company Colonial Pipeline Company. The company sealed the deal with a private equity firm Kohlberg Kravis Roberts & Company, in partnership with South Korea’s state-run National Pension Service (“NPS”).
As per the agreement, Chevron will sell its 23.44% stake in Colonial. The deal was closed on October 8, 2010. Although the exact financial terms of the transaction were not disclosed, the deal is valued at approximately $890 million.
In March, 2010, Chevron announced plans regarding divesting the interest in Colonial as a part of the company’s business strategies to restructure the asset portfolio. The company aims to sell its marketing businesses in Kenya, Nigeria, Uganda, Western Africa and Brazil.
We believe that Chevron targets to exit the low profit generating business such as crude refining and fuel-shipping, and get heavily involved in the discovery of oil and gas across the globe.
Atlanta-based Colonial runs the largest refined products pipeline (almost 5,500 mile) in North America, delivering gasoline, jet fuel and home heating oil from the Gulf Coast to customers along the Eastern seaboard. Colonial, on an average basis, transports 100 million gallons of gasoline, kerosene, diesel fuel, home heating oil and aviation fuels per day.
Apart from Chevron, the other stakeholders of the pipeline are Koch (28.09%), ConocoPhillips (COP) (16.55%), Royal Dutch Shell plc (RDS.A) (16.12%) and IFM (15.80%).
Chevron currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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