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Enterprise acquires Navitas Midstream for $3.25 billion in cash
01/24/2022
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.
$7 Billion Merger of Colgate and Centennial, the 2 Largest Permian Operators
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Despite the circulating rumors concerning Colgate’s attempt to launch an IPO, on May 19 the company decided to combine with Centennial Resource Development Inc. This merger of equals is estimated at $7 billion and will found the biggest pure-play E&P company in the Delaware Basin of the Permian. The transformative combination essentially enlarges companies’ potential and hastens the growth across all financial and operating metrics. According to Centennial CEO Sean Smith, the combined company is anticipated to furnish shareholders with quickened capital return program due to a fixed dividend coupled with a share repurchase plan. Due to a recent report, the merger would increase production 7%, to 145,000 boe/d by the fourth quarter would further ratchet up next year. By third-quarter 2023, the company predicted 160,000 boe/d based on a drilling program of 140 wells per year. Colgate Energy was reported to be getting an IPO last December that sources said would value the company at approximately $4 billion. The combined company will have over 15-years of drilling inventory, assuming its current drilling pace, the companies will produce over $1 billion of free cash flow in 2023 at current strip prices.
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Shareholder’s payout target was increased by 50% after the largest U.S. independent oil producer surpassed Wall Street’s earnings estimates on growing energy prices, said Houston-based Conoco Phillips Co. on Aug. 4. Due to Western sanctions on major producer Russia throttling energy supply amid a rebound in demand from pandemic lows, oil and gas #prices have soared. Crude has been trading more than 25% higher since the start of the year and results also benefited from high natural gas prices. Meanwhile, shares were down a fraction, to $91.03, in early trading but are up about 26% year to date. Conoco Phillips stated, that the average price obtained for a barrel of oil and gas accelerated 77% from a year earlier to $88.57. The company acknowledges that it has not hedged any of its oil and gas sales to make the most of higher market prices. The capacity of 1.69 million boe/d was in line with Wall Street estimates, however, the company expected the current quarter’s output would be between 1.71 million and 1.76 million boe/d.
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California oil joint venture, Aera Energy, of Exxon Mobil Corp. and ShellPlc is being sold to German asset manager IKAV, according to the agreement of Sept. 1. Shell noted that the sale of its 51.8% membership interest in Aera Energy is for a total consideration of about $2 billion in cash with additional contingent payments based on future oil prices, subject to regulatory approval. However, the total transaction value was not disclosed. Being one of California’s largest oil and gas producers, Aera Energy accounts for nearly 25% of the state’s production. The sale by Exxon Mobil and Shell ends a 25-year-long partnership in California, meanwhile, it persists a streak of divestments of mature oil and gas properties by the two supermajors. Aera Energy LLC operates about 13,000 wells in the San Joaquin Valley in California, producing oil and associated gas. In 2021, Aera took out about 95,000 boe/d. Exxon Mobil’s interests in the Aera oil-production operation in California contained a 48.2% share of Aera Energy LLC and a 50% share of Aera Energy Services Co. held by Mobil California Exploration & Producing Co. Moreover, Exxon Mobil affiliates have signed a separate agreement for the sale of an associated loading facility and pipeline system. The sale effectively ends Shell’s upstream position in California. The company reported that the divestiture is valued to result in a post-tax impairment of $300 million to $400 million, subject to adjustments.
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The completion of the merger between Centennial Resource Development Inc. and Colgate Energy Partners II LLC happened on Sept. 1, sealing the debut of Permian Resources Corp., which is considered the largest pure-play E&P company in the Delaware Basin. Permian Resources’ idea was to combine two successful E&P companies, creating a better, stronger, and more strategically compelling company. Centennial and Colgate announced an agreement to merge in May, denying rumors that Colgate, a privately held independent Midland-based company, had been seeking an IPO. The merger estimated Colgate at about $3.9 billion and consists of 269.3 million shares of Centennial stock, $525 million of cash, and the assumption of approximately $1.4 billion of Colgate’s outstanding net debt. Permian Resources, being the combined company, has a deep inventory of “high-quality” drilling locations on around 180,000 net acres the companies anticipate will provide more than $1 billion of free cash flow in 2023 at current strip prices, in accordance with the company release on Sept. 1.