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Enbridge agreed to acquire the Tres Palacios gas storage facility in Texas for $335 million03/23/2023
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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