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Western Expands Powder River Footprint with $885M Acquisition09/21/2023
Western Midstream will acquire Meritage Midstream's Powder River Basin assets, including gas gathering and an NGL pipeline, for $885 million in cash.
A subsidiary of Western Midstream Partners LP is set to acquire Meritage Midstream Services II LLC in an $885 million all-cash transaction, marking a significant expansion in the Powder River Basin for the company.
This acquisition follows a trend of consolidation in the midstream infrastructure sector that began in late 2022. One of the landmark deals this year includes Energy Transfer's $7.1 billion acquisition of Crestwood Equity Partners in mid-August.
According to the terms of the agreement, Western Midstream will acquire Meritage's extensive natural gas gathering and processing operations, which are based in Wyoming's Powder River Basin.
What Meritage Brings to the Table
Meritage's assets span Converse, Campbell, and Johnson counties in Wyoming:
- Roughly 1,500 miles of both high- and low-pressure natural gas gathering pipelines
- A natural gas processing capacity of about 380 MMcf/d
- The Thunder Creek NGL pipeline, a 120-mile line with a 38 MBbl/d capacity that links to Meritage’s processing facilities
These assets are backed by dedicated acreage exceeding 1.4 million acres and contracts averaging eight years in lifespan from a diverse set of mainly investment-grade counterparties.
Market Impact and Future Projections
As of July 2023, Meritage's operations were at 65% utilization, a rise from the year's start. Following the acquisition, Western Midstream is expected to recommend a base distribution increase, enhancing shareholder value.
Capital Allocation Concerns
Some investors may question the company’s shift in focus, especially when considering existing constraints in the Permian Basin. However, the acquisition positions Western Midstream strongly for future growth opportunities in the Powder River Basin.
Michael Ure, the CEO of Western Midstream, expressed that the acquisition considerably enlarges the company's operational scale in the Powder River Basin. "This region has lured significant investments, given its multi-layered potential for pay horizons," Ure said.
Western Midstream Partners: An Overview
Western Midstream Partners (WES) maintains a diversified operational footprint across several key geographic areas, including the Rocky Mountains, North-central Pennsylvania, and the states of Texas and New Mexico. As a pivotal operator in the midstream energy industry, WES delivers a broad spectrum of services. These services range from the gathering, compression, and treatment of natural gas, to the management of condensate, NGLs, and crude oil. Beyond these operations, WES also engages in both the buying and selling of natural gas, NGLs, and condensate, functioning as a contractual agent for its clientele.
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