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Energy Transfer Secures $7.1 Billion Deal to Take Over Crestwood
08/30/2023
- Energy Transfer to buy Crestwood for $7.1B.
- Deal includes taking on $3.3B of Crestwood's debt.
- Adds significant gas and crude gathering capacity to Energy Transfer.
Energy Transfer is taking on $3 billion of Crestwood's debt in a stock deal. This move expands their reach in the Williston and Delaware basins and gets them into the Powder River Basin for the first time.
Drilling down into Energy Transfer's latest acquisition
Energy Transfer LP announces plans to buy Crestwood Equity Partners LP in a stock-based transaction worth $7.1 billion, marking another major deal in the midstream industry this year.
Crestwood's portfolio features gathering and processing facilities in the Williston, Delaware, and Powder River basins. The assets include roughly 2 billion cubic feet per day in gas gathering, 1.4 billion cubic feet per day in gas processing, and 340,000 barrels per day in crude gathering capacity.
“If consummated, this transaction would extend Energy Transfer’s position in the value chain deeper into the Williston and Delaware basins while also providing entry into the Powder River basin,” Energy Transfer said.
Energy companies are increasingly investing in pipeline ventures as a strategy to counterbalance the shrinking revenues from their fossil fuel operations. For example, Phillips 66 announced a $3.8 billion investment to double its ownership in a Denver-based pipeline company earlier this year, aiming to increase sales of natural gas liquids like ethane, propane, and butane. This move came on the heels of Targa Resources' $1.05 billion acquisition of the extensive Grand Prix NGL Pipeline system, which also transports natural gas liquids.
Financial impact
The acquired assets from Crestwood are anticipated to synergize well with Energy Transfer's downstream fractionation facilities at Mont Belvieu. They are also expected to bolster the company's hydrocarbon export operations at its Nederland Terminal in Texas and Marcus Hook Terminal in Philadelphia.
Energy Transfer projects a yearly cost savings of $40 million from the deal, not accounting for other financial and commercial advantages. Crestwood unitholders are set to gain both in distributions per unit and the chance to be part of Energy Transfer's aimed annual distribution growth of 3% to 5%.
Energy Transfer is taking on Crestwood's $3.3 billion debt in the deal but describes it as "credit neutral." According to the terms, Crestwood unit holders will get 2.07 Energy Transfer units for each of their Crestwood units. The acquisition is slated to wrap up in the fourth quarter of 2023, pending approval from Crestwood unit holders, regulatory green lights, and other standard closing conditions.
Energy Transfer boasts one of the most extensive and varied collections of energy assets in the U.S., with close to 125,000 miles of pipelines and other related infrastructure. Crestwood, a Houston-based master limited partnership, also specializes in midstream operations and has a presence in various shale resource areas across the country.
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From Beginnings to a $7.1 Billion Milestone: Deal-Making Histories of Energy Transfer and Crestwood - Complex Review by Rextag
Energy Transfer's unit prices have surged over 13% this year, bolstered by two significant acquisitions. The company spent nearly $1.5 billion on acquiring Lotus Midstream, a deal that will instantly boost its free and distributable cash flow. A recently inked $7.1 billion deal to acquire Crestwood Equity Partners is also set to immediately enhance the company's distributable cash flow per unit. Energy Transfer aims to unlock commercial opportunities and refinance Crestwood's debt, amplifying the deal's value proposition. These strategic acquisitions provide the company additional avenues for expanding its distribution, which already offers a strong yield of 9.2%. Energized by both organic growth and its midstream consolidation efforts, Energy Transfer aims to uplift its payout by 3% to 5% annually.
Kimbell Set to Purchase Permian and Mid-Continent Assets for $455 Million
Kimbell Royalty Partners' acquisition adds land in Delaware & Midland basins, enhancing its lead in production, active rigs, DUCs, permits & undrilled inventory. Kimbell Royalty Partners LP has recently announced a landmark deal, the largest in its history, to expand its foothold in the oil and gas industry. The company has agreed to purchase Permian Basin and Midcontinent assets for a staggering $455 million in cash from a private seller.
Kinetik Holdings recently announced a series of transactions in the energy sector. They struck a deal to buy Durango Permian infrastructure for $765 million. At the same time, they're selling their 16% share in the Gulf Coast Express Pipeline to ArcLight Capital Partners for $540 million. The total purchase cost includes $510 million in cash paid immediately and an additional $30 million that will be paid later, depending on whether they decide to expand further.
Recently, the Permian has seen significant acquisitions: Exxon Mobil purchased Pioneer Natural Resources for about $60 billion. Diamondback Energy's $26 billion deal to acquire Endeavor Energy Resources is currently on hold due to requests from the U.S. Federal Trade Commission. Occidental’s acquisition of CrownRock for $12 billion in the Midland.
EOG Resources is pushing boundaries in Ohio's Utica oil play and now drilling on the Sable pad, also located in Noble County. This site features the 3.7-mile lateral currently under construction. The company's first multi-well pads in the area Timberwolf and Xavier have each produced over 200,000 barrels of oil since their inception—Timberwolf in August and Xavier in October. A third site, the four-well White Rhino pad in Noble County, is also showing promising early results, according to Keith Trasko, EOG’s Senior Vice President of Exploration and Production, who noted the wells are performing as expected in their initial weeks.