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Enterprise acquires Navitas Midstream for $3.25 billion in cash
01/24/2022![Enterprise-acquires-Navitas-Midstream-for-3.25-billion-in-cash](https://images2.rextag.com/public/blog/Enterprise-acquires-Navitas-Midstream-for-3.25-billion-in-cash.png)
A Warburg Pincus LLC affiliate has approved Enterprise Products Partners' bid to acquire Navitas Midstream Partners, LLC, for $3.25 billion in cash. The deal is expected to close by the first quarter of 2022 and will be debt-free. In the Permian's Midland Basin, Navitas provides natural gas gathering, treatment, and processing services.
According to Tudor, Pickering, Holt & Co. (TPH), Enterprise's acquisition agreement with this privately held company came as a surprise, given its recent capital discussions and preference for downstream businesses. Since portfolios are relatively inexpensive, the implied DCF yield is only marginally higher than standalone EPD metrics, and increasing exposure to wellheads without a clear readthrough to NGL logistics is difficult to reconcile with the messaged strategy. However, little attention was paid to incremental downstream volumes to EPD's pipelines, fractionation, and exports, which will be crucial to justify expanding wellhead exposure.
Meanwhile, Navitas Midstream itself has approximately 1,750 miles of pipeline in the Midland Basin and is working towards finishing its Leiker cryogenic natural gas processing plant in the first quarter of 2022.
In the heart of the Midland Basin, the Navitas management team has produced a premier system, according to Enterprise Co-CEO A. J. Teague. And this acquisition comes in handy, giving Enterprise access to the Midland Basin, as the company lacks natural gas or natural gas liquids infrastructure apart from downstream pipelines in the region.
Navitas was formed in 2014 with the assistance of Warburg Pincus and an experienced management team in The Woodlands, Texas. Before being sold to Kinder Morgan in 2013, Copano Energy LLC was built into a $5 billion enterprise by R. Bruce Northcutt, Bryan Neskora, and Jim Wade. And now, according to top management, the company is able to provide critical infrastructure to meet the needs of Midland Basin producers.
Today over 40 independent and publicly owned producers are connected to the Navitas system through long-term contracts. Furthermore, the system depends on fee-based contracts to generate additional revenues. With up to 10,000 drilling locations or 15 years of drilling inventory on the dedicated acreage, Navitas Midstream is positioned to provide visibility into future growth.
And as a result of the Navitas acquisition, Enterprise estimates that distributable cash flow accretion will be in the range of $0.18 to $0.22 per unit in 2023, which will be Enterprise's first full year of ownership. This investment should also support additional capital returns to their limited partners through distribution growth and buybacks of common units.
According to Warburg Managing Director John Rowan, this acquisition represents the largest private gas gathering and processing activity in the world. A combination of cash on hand and borrowings will be used to fund the acquisition, in addition to the partnership's existing commercial paper and bank credit facilities.
Merrill Lynch serves as Navitas' financial adviser, while Kirkland & Ellis occupies the role of its legal adviser.
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Look At The Future Of American And Appalachian Gas Production
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The crux of the matter is rather simple: productivity gains of local energy operators have been stable not only because they are drilling better acreage, but also because players finally realized capital efficiency gains. And even if some new obstacles impede Appalachia's growth at the same rate as the Permian or Haynesville, it does not detract from the value of the Marcellus and Utica basins. The Appalachians will still be the top producers at a very competitive pace as long as commercial inventory exists. After all, as long as there is commercial inventory, somebody will have to drill.
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.
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The pipeline industry in the USA faced and still faces a range of regulatory challenges, including permitting delays, environmental requirements, and public opposition to pipeline projects. In recent years, pipeline projects like the Keystone XL and Dakota Access pipelines had legal and regulatory obstacles that delayed or canceled their construction. Keystone XL Pipeline, proposed by TransCanada in 2008, aimed to transport crude oil from Canada (around Calgary and Edmonton) to refineries on the Gulf Coast (Port Arthur). The project faced opposition from environmental groups and indigenous communities, who argued that it would contribute to climate change and pose a risk to water resources. In 2015, President Obama rejected the project, citing concerns about its environmental impact. However, in 2017, President Trump revived the project, leading to further legal challenges. In June 2021, U.S. President Joe Biden officially canceled the project on his first day in office.
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The renewable natural gas (RNG) industry in the United States is showing promising signs of growth. As of 2019, the U.S. consumed 261 billion cubic feet (BCF) of RNG, primarily utilized by independent power producers, electric utilities, and various commercial and industrial entities. However, this figure represents only a small fraction of its potential. Research indicates that the U.S. could theoretically produce up to 2,200 BCF of RNG through anaerobic digestion alone, which would equate to about 11% of daily national natural gas consumption.
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Recently, the progress toward an energy transition is hitting a snag. Sales of electric vehicles are decelerating, and the growth in wind and solar power needs to be keeping pace with expectations. To make matters more challenging, electricity prices are climbing when they were expected to fall. Amidst these setbacks, the oil and gas sectors are proving resilient. According to BP's latest energy outlook, not only are these energy mainstays here to stay, but their demand is expected to remain relatively high even after reaching a peak. Interestingly, BP forecasts that oil demand will reach its zenith next year, marking a critical moment in energy consumption trends. This isn't the first time BP has projected a peak in oil demand. Back in 2019, their review anticipated a decline in demand growth, but the prediction fell flat. Instead, oil demand surged to unprecedented levels following the end of the global pandemic lockdowns, defying previous forecasts and underscoring the enduring dominance of traditional energy sources in the global market.