Energy company Phillips 66 (PSX) has entered into a definitive agreement to acquire EPIC Y-Grade GP, LLC and EPIC Y-Grade, LP for $2.2 billion. The two entities being acquired own several subsidiaries and long-haul natural gas liquids (NGL) pipelines, fractionation facilities, and distribution systems. The deal is expected to enhance Phillips 66’s midstream business in the Permian Basin. PSX shares were up 1.1% in Monday’s extended trading.
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Rationale Behind Phillips 66’s Acquisition of EPIC NGL Assets
Phillips 66 believes that the acquisition of EPIC NGL will bolster its position as a leading integrated downstream energy player. Moreover, the deal will enhance the company’s Permian NGL value chain, allowing it to “provide producers with comprehensive flow assurance, reaching fractionation facilities near Corpus Christi, Sweeny, and Mont Belvieu, Texas.” Interestingly, around 85% of U.S. NGL production is based in the Permian Basin oil field, with most of it being exported.
The company highlighted that EPIC NGL is in the process of boosting its pipeline capacity to 225 MBD (million barrels per day) and has sanctioned a second expansion to enhance its capacity to 350 MBD.
It is worth noting that this acquisition is expected to be immediately accretive to Phillips 66’s earnings per share on completion. It marks yet another deal in the oil and gas space, with a key focus on the Permian basin.
Is Phillips 66 a Good Stock to Buy?
Last week, Wolfe Research analyst Doug Leggate upgraded Phillips 66 stock to Buy from Hold with a $143 price target. The analyst noted that PSX has declined below the discounted cash flow value of its portfolio and is not reflecting the value of its refining business. The analyst does not expect margins to significantly deteriorate from current levels.
Overall, Wall Street has a Moderate Buy consensus rating on Phillips 66 stock based on nine Buys and four Holds. The average PSX stock price target of $142.55 implies about 24% upside potential. Shares have declined about 15% in the past year.
