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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
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OXY has been the leader in Permian Basin production for the past five years. Currently, the Houston-based oil and gas company is deepening its presence in the basin with a $12 billion acquisition of CrownRock, adding over 94,000 acres in the Midland Basin and increasing its oil output by about 170,000 barrels per day. Occidental announced an increase in its proved reserves to 4.0 billion barrels of oil equivalent by the end of December 2023, up from 3.8 billion the previous year. Activities in the Permian largely fueled this rise. Occidental added approximately 303 million barrels through infill development projects as well as new discoveries and the further development of existing fields brought in another 153 million barrels.
TotalEnergies kicked off 2024 with a net income of $5.7 billion in the first quarter, marking a modest 3% increase from the same period last year and a 13% rise from the previous quarter. This growth occurred despite experiencing drops in both the volume and price of gas sales over the year and the quarter. Their adjusted net earnings, which exclude one-time or unusual items, were $5.1 billion. This represents a significant 22% decline compared to last year and a slight 2% drop from the last quarter. The company's earnings before tax, depreciation, and amortization reached $11.5 billion, while their cash flow from operations significantly decreased to $2.2 billion, falling by 58% from last year and a steep 87% from the previous quarter. TotalEnergies also recorded $644 million in impairments.
New Mexico leads the Rockies region in gas production and ranks as the sixth-largest in terms of active gas wells in the U.S. Last year, the state's gas well count slightly increased by 0.2% to 30,699, with new additions in both the northwestern San Juan Basin and the southeastern Permian Basin. Meanwhile, just to the north in Colorado, gas producers grew by a modest 0.1% to 30,322, primarily due to increased drilling activity in the DJ and Piceance basins. Wyoming saw a decline in its active gas wells by 3.7%, down to 17,006, with production mainly in Sublette, Sweetwater, and Converse counties reflecting stable or slightly reduced drilling activity. Utah also experienced a slight decrease of 0.2% in its number of gas wells, totaling 6,463. In Q1 2024, oil and gas industry activity in Oklahoma, Colorado, and northern New Mexico experienced a decline. This marks the fifth consecutive quarter of contraction in drilling and business activities within these regions. According to a survey that included responses from 33 firms operating in the Rockies, this downtrend is expected to continue over the next six months.