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Enterprise acquires Navitas Midstream for $3.25 billion in cash

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

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.

The ever-increasing demand for natural gas exports from the Gulf Coast started a race to further develop Permian Basin. Various companies, including Kinder Morgan and MPLX, are among those looking at building new pipelines in the region due to the demand spike. But Energy Transfer seems to edge past them into the lead since its project strikes as the most economical option for the basin outside of capacity expansions on existing pipelines and could essentially add 1.5-2 Bcf/d of transport capacity with just 260 miles of new pipe.

Oil output in the Permian Basin in Texas and New Mexico is supposed to go up 88,000 bbl/d to a record 5.219 million bbl/d in June, as the U.S. Energy Information Administration (EIA) announced in its report on May 16. Additionally, gas productivity in the Permian Basin and the Haynesville in Texas, Louisiana and Arkansas will rise to record highs of 20 Bcf/d and 15.1 Bcf/d in June, respectively. Given that this growth has been expected, recent global market changes make forecasting the output even more challenging. Learning how production will change is easier with early activity tracking, a new service recently launched by Rextag – Pad Activity Monitor. With the help of PAM, you are able to monitor well pad clearing, drilling operations, fracking crew deployment and completions with new data collected approximately every 2 days. Additionally, it cuts down activity reporting lag times by at least 98%, from 120-180 days down to just 5-8 days. In order to access reports, charts, tables, and mapping visualizations via Rextag’s Energy DataLink use a web-based application allowing users to filter, download and identify activity on a map or data table. Moreover, customers will be able to set up daily, weekly, and monthly email report notifications.

The EIA forecasts that total output in the main U.S. shale oil basins will increase 142,000 bbl/d to 8.761 million bbl/d in June, the most since March 2020. Oil productivity in the Permian Basin in Texas and New Mexico is supposed to go up 88,000 bbl/d to a record 5.219 million bbl/d in June, as the U.S. Energy Information Administration (EIA) announced in its report on May 16. In the largest shale gas basin, the productivity in Appalachia in Pennsylvania, Ohio and West Virginia will grow up to 35.7 Bcf/d in June, its highest since beating a record 36 Bcf/d in December 2021. Gas output in the Permian Basin and the Haynesville in Texas, Louisiana and Arkansas will rise to record highs of 20 Bcf/d and 15.1 Bcf/d in June, respectively. Speaking of the Permian future output, putting hands on upcoming changes in production has recently been made easier with the new Rextag's service - Pad Activity Monitor. Thanks to satellite imagery and artificial intelligence, customers are able to monitor the oil and gas wells and are provided with near real-time activity reports related to drilling operations. However, it is noticed that productivity in the largest oil and gas basins has decreased every month since setting records of new oil well production per rig of 1,544 bbl/d in December 2020 in the Permian Basin, and new gas well production per rig of 33.3 MMcf/d in March 2021 in Appalachia.

No sooner had the crude prices soared above $100/bbl than the industry professionals believed in an incredible growth of drilling activity in North America’s largest shale patch. Analysts speculate that additional output of 500,000 barrels of oil daily would become a significant part (4%) of overall U.S. daily production. That is going to flatter oil and gasoline prices. Drilling permits in the Permian Basin are persistently growing, averaging approximately 210 at the beginning of April. Moreover, the permits trend is noticed as an all-time high as a total of 904 horizontal drilling permits were awarded last month. Nowadays, learning and analysing the current situation and predicting the future development become easier with early activity tracking, a new service recently launched by Rextag. Rextag's Pad Activity monitor (PAM) allows you to see well pad clearing, drilling operations, fracking crew deployment and completions with new data collected approximately every 2 days with the help of satellite imagery and artificial intelligence. While the increase in drilling will result in higher production, U.S. shale producers will have to overcome several hurdles including labor shortages and supply constraints.

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