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Koch Industries makes a big bet on shale gas: $2.1 billion bid for PetroLogistics

By: Frank Esposito

May 28, 2014

Flint Hills Resources LLC — a unit of industrial conglomerate Koch Industries — is buying propylene supplier PetroLogistics LP for $2.1 billion.

The all-cash deal represents a premium of more than 8 percent over PetroLogistics’ closing stock price on May 27. The transaction represents a big bet on future economics of shale-based natural gas for Flint Hills and Koch, both based in Wichita, Kan. Natural gas processing gas supplies the propane that Houston-based PetroLogistics converts into propylene monomer via the propane dehydrogenation (PDH) process.

In a May 28 news release, Flint Hills President and CEO Brad Razook said PetroLogistics’ plant on the Houston Ship Channel is a world-class operation and that its capabilities “are well-aligned with our existing chemical and refining business.”

The sale also represents the culmination of a journey that began in 2008 when PetroLogistics’ original investors bought that defunct olefins plant from ExxonMobil Chemical Co. The plant then was retrofitted to make on-purpose propylene via PDH, instead of as a by-product of cracking ethylene. Globally, about 60 percent of propylene monomer is used to make polypropylene resin.

PetroLogistics began production in early 2011 and now has almost 1.5 billion pounds of annual propylene capacity there. The firm posted sales of almost $760 million in 2013, when it produced almost 1.1 billion pounds of propylene. Full-year comparisons are not available, but PetroLogistics’ fourth-quarter sales of $191 million were up 15 percent vs. the same quarter in 2012.

First-quarter 2014 sales at PetroLogistics grew almost 6 percent vs. the year-ago quarter to $220 million. Propylene production for the quarter also grew almost 6 percent to almost 316 million pounds.

PetroLogistics went public in May 2012 with its stock at $16.50 per share. The price has bounced between $11 and $16 since January 2013 and had closed at just under $13 on May 27.

Flint Hills has interests in plastics, chemicals and refining. Its plastic operations include PP plants in Longview, Texas, and Marysville, Mich., as well as an expandable polystyrene plant in Peru, Ill. The firm also makes plastic feedstocks ethylene and propylene at a plant in Port Arthur, Texas.

The PetroLogistics deal is Koch’s second big plastics-related move in the last nine months. In September the firm paid $7.2 billion for Lisle, Ill.-based Molex Inc., a major producer of plastic components for the electronics market. Koch also owns Invista, a leading maker of nylon resins and fibers also based in Wichita.