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Massive Energy Deal Alert: Energy Transfer to Acquire Lotus Midstream in Permian Basin for $1.45 Billion!

Energy Transfer's recent acquisition of Lotus Midstream's infrastructure for $1.45 billion is a remarkable feat that is bound to shake up the energy industry.

This strategic move grants Energy Transfer access to the highly prized Centurion Pipeline, as well as an additional 3,000 miles of crude gathering and transportation pipelines. These pipelines span across the vast Permian Basin of West Texas, stretching all the way from New Mexico and culminating at the bustling energy hub of Cushing, Oklahoma.

In a major move that has set the energy industry abuzz, Energy Transfer LP has announced its acquisition of Lotus Midstream LLC for a staggering $1.45 billion in cash-and-stock. This game-changing deal includes a vast network of pipelines, gathering, and storage facilities spanning the Permian Basin, and opens up new avenues for a connecting crude oil pipeline project from Midland to Cushing, Oklahoma.

The acquisition, from an affiliate of EnCap Flatrock Midstream (EFM), is just the latest in a series of midstream deals worth billions of dollars that have dominated the industry since late last year. From smaller bolt-on deals to multi-billion-dollar transactions like Enterprise Products Partners' acquisition of Navitas and Targa's acquisition of Lucid Energy, the sector is experiencing a flurry of activity that is showing no signs of slowing down.

According to Stacey Morris, head of energy research for VettaFi, "Energy Transfer's acquisition of Lotus is another example of a sizable acquisition of Permian assets, though this deal is different in that the assets are focused on crude gathering and transportation instead of natural gas."

Why the Permian Basin is so significant for O&G players?

The Permian Basin continues to be a hotbed of deal-making activity as midstream companies seek to bolster their positions in the most prolific producing region in the United States. With fierce competition in the region, expanding footprints and establishing enhanced connectivity to different markets is crucial for midstream companies looking to improve their offerings and transportation solutions for customers.

By acquiring new infrastructure and expanding their networks, midstream companies can provide more efficient and cost-effective transportation solutions for producers, leading to increased competitiveness and profitability for all parties involved. As such, the Permian Basin remains a highly attractive area for deal-making, with companies seeking to gain a competitive edge in this dynamic and rapidly evolving market.

In total, Energy Transfer will pay $900 million in cash and approximately 44.5 million newly issued Energy Transfer common units, solidifying its position as a leading player in the energy sector and paving the way for a bold new chapter in its history.

Sneak peek at the details

The deal includes approximately 3,000 active miles of pipeline with nearly 1.5 MMbbl/d of capacity, connecting major production areas of the Permian Basin, including Cushing, Midland, Colorado City, Wink, and Crane. The system is anchored by large-cap producer customers with firm, long-term contracts and significant acreage dedications.
As part of the acquisition, Energy Transfer also gains a 5% equity interest in the Wink to Webster Pipeline, a 650-mile pipeline system transporting over 1 MMbbl/d of crude oil and condensate from the Permian Basin to the Gulf Coast.
Energy Transfer plans to begin construction on a 30-mile pipeline project, originating barrels from its Midland terminals for ultimate delivery to Cushing.
The project is expected to be completed in Q1 2024, offering improved connectivity and efficiency for Energy Transfer and its customers.

Energy Transfer's latest acquisition deal is set to close in Q2, bringing Lotus Midstream's Centurion Pipeline Company under its umbrella. The integrated crude midstream platform, located in the Permian, offers a comprehensive range of services, including wellhead gathering, intra-basin transportation, terminalling, and long-haul transportation services.

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US Midstream Research 2022 Overview: TOP Providers, Their Assets and Stories

The midstream sector plays a vital role in the oil and gas supply chain, serving as a crucial link. As the energy transition continues, this industry, like the broader sector, encounters various risks. Yet, existing analyses have predominantly concentrated on the risks faced by the upstream and downstream sectors, leaving the fate of the midstream relatively unexplored. In a nutshell, midstream operators differentiate themselves by offering services instead of products, resulting in potentially distinct revenue models compared to extraction and refining businesses. However, they are not immune to the long-term risks associated with the energy transition away from oil and gas. Over time, companies involved in transporting and storing hydrocarbons face the possibility of encountering a combination of reduced volumes, heightened costs, and declining prices.

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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