A lot of energy-industry M&A activity lately has been focused on the acquiring company gaining scale in a shale play or region where it’s already very active, usually the Permian. The latest multibillion-dollar deal in the energy space is different: Sunoco LP (stock ticker symbol SUN), which is primarily involved in fuel distribution east of the Mississippi and in Texas, is buying NuStar Energy (ticker NS), a midstream company with a mix of pipelines (crude oil, products and ammonia) and terminals, most of them within the U.S.’s midsection. As we discuss in today’s RBN blog, the combined company will have a massive footprint, with all kinds of opportunities for synergies and growth.
There’s been so much going on in midstream M&A the past couple of years that we recently put together our first-ever Drill Down Report on the subject, in which we examined a number of the big-dollar deals of 2023. Like their upstream counterparts, midstreamers have been scaling back capital spending and instead focusing on improving the efficiency of existing operations, sometimes by acquiring others that held adjoining, complementary assets — or that gave the acquiring firm a strong foothold in a highly desirable production area. As we’ll get to in a moment, Sunoco LP has been quietly buying an impressive array of fuel terminals and other assets from others — including some from NuStar itself — and earlier this week announced its first multibillion-dollar acquisition.
First, a look at Sunoco LP. The master limited partnership (MLP), which was formed in 2012, is one of the largest independent fuel distributors in the U.S. — it distributes more than 8 billion gallons of motor fuel and other petroleum products annually across 40 states and Puerto Rico. Sunoco has 42 product terminals (white tank icons in Figure 1), most of them in the Northeast and Midwest, as well as thousands of wholesale and retail distribution sites (dark blue dots), mostly located east of the Mississippi or in Texas. In addition to being the exclusive wholesale supplier of Sunoco-branded gasoline and diesel, the company is one of the largest distributors of Chevron, Texaco, ExxonMobil and Valero motor fuels. And, as part of a 2018 agreement, Sunoco has a 15-year take-or-pay supply agreement with retailer 7-Eleven under which 7-Eleven will purchase a volume of fuel that provides Sunoco with a minimum amount of gross profit annually — that agreement is too complicated to explain here.
Sunoco LP’s Asset Portfolio
Figure 1. Sunoco LP’s Asset Portfolio. Source: Sunoco
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