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Enbridge agreed to acquire the Tres Palacios gas storage facility in Texas for $335 million
03/23/2023
Enbridge, a Canadian company operating in the midstream sector, has recently acquired the Tres Palacios natural gas storage facility in Matagorda County, Texas for $335 million. This acquisition was made through a deal with Crestwood Equity Partners LP and Brookfield Infrastructure Partners and will add approximately 35 Bcf of Gulf Coast natural gas storage to Enbridge's portfolio.
Located in Markham, Texas, Tres Palacios is a natural gas storage facility that uses salt caverns for storage. It comprises three storage caverns with a working gas capacity of approximately 35 Bcf and is currently in the process of obtaining permits for a fourth storage cavern that would add another 6.5 Bcf of capacity. According to regulatory filings, the facility has a maximum injection rate of 1 Bcf/d and a maximum withdrawal rate of 2.5 Bcf/d.
Tres Palacios possesses a gas header pipeline system that spans 62 miles and links to 11 major gas pipelines, including Enbridge's Texas Eastern Pipeline. Nonetheless, Crestwood Equity Partners LP revealed its intention to divest interests in Tres Palacios during the earnings report on February 21. The transaction is slated to be completed in the second quarter.
Expanding Through Non-Core Asset Acquisition
In an effort to streamline its portfolio, Crestwood has been expanding into oil-rich areas like the Williston, Delaware, and Powder River basins, as stated by CEO Robert Phillips in the company's Q4 earnings report. As part of this strategy, Crestwood has been divesting non-core and gas-focused assets in shale formations such as Barnett and Marcellus.
Crestwood owns a 50.1% equity interest in the Tres Palacios joint venture, with Brookfield holding the remaining 49.9%. Crestwood is set to receive approximately $168 million from the sale of its stake in Tres Palacios, which will be used to reduce its debt.
Enbridge has been capitalizing on the trend of companies divesting non-core midstream assets since the summer of 2022. One example of this is Enbridge's acquisition of Diamondback Energy Inc.'s 10% equity interest in the Gray Oak Pipeline in January. This pipeline connects crude oil from the Permian Basin and Eagle Ford Shale to various destinations along the Texas Gulf Coast.
The company has been expanding its stake in the Gray Oak Pipeline since August 2022 when it boosted its interest from 22.8% to 58.5% through a joint venture merger transaction with Phillips 66. Enbridge's stake increased further to 68.5% after it acquired the additional 10% interest from Diamondback.
In the second quarter of 2023, Enbridge will take over the operatorship of the pipeline. The company's recent acquisitions and expanded ownership of the Gray Oak Pipeline demonstrate its strategy of investing in core midstream assets to support its long-term growth.
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U.S. Natural Gas Pipelines Infrastructure Overview by Rextag
The U.S. natural gas pipeline network is a complex system of pipelines that transport natural gas from production areas to consumers across the country. The pipeline network consists of three main types of pipelines: gathering pipelines, transmission pipelines, and distribution pipelines. Gathering pipelines are small-diameter pipelines that transport natural gas from production wells to processing facilities or larger transmission pipelines. Transmission pipelines are large-diameter pipelines that transport natural gas over long distances, sometimes across multiple states. Distribution pipelines operate at low pressure and are located in or near urban areas. They are often referred to as "utility pipelines" because they are typically owned and operated by local gas utility companies.
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.
The Williston Basin is a big area filled with layers of rock that sits next to the Rocky Mountains in western North Dakota, eastern Montana, and the southern part of Saskatchewan in Canada. This area covers roughly 110,000 square miles. Geologically, it's very similar to the Alberta Basin in Canada. People started drilling for oil in the Williston Basin back in 1936, and by 1954, most of the land where oil could likely be found was already claimed for drilling. The Bakken Formation with parts of Montana, North Dakota, Saskatchewan, and Manitoba has become one of only ten oil fields globally to yield over 1 million barrels per day (bpd) since the late 2000s. It is currently the third-largest U.S. shale oilfield, behind the Permian and Eagle Ford. The boom in the Bakken started around September 2008, coinciding with the U.S. housing market crash. The application of new technologies, such as swell packers enabling multiple-stage fracturing, significantly enhanced oil recovery, making the Bakken Formation a key player in the U.S. In 2022, the Bakken oil field saw big improvements in how much oil and gas it could produce. At the start of the year, 27 drilling rigs were working there, more than double the 11 rigs from the start of 2021. Important upgrades included making the Tioga Gas Plant able to process 150 million cubic feet more gas each day, and making the Dakota Access Pipeline bigger, increasing its oil transport capacity from 570,000 to 750,000 barrels every day.
Continental Resources is expanding its operations in the Midland Basin, including taking over some assets that used to belong to Occidental Petroleum. The company plans to use its expertise in exploration in this area.
Equinor and EQT Corporation have agreed that Equinor will exchange its operated assets in the Marcellus and Utica shale formations in Ohio for a stake in EQT’s non-operated interests in the Northern Marcellus formation.