The feeling is almost palpable among midstreamers: In a rapidly changing energy industry, companies that collect, transport, store and export hydrocarbons need to consolidate and scale, and be smart about how they get bigger. Scale, that’s the key. That, plus complementary assets that provide synergies, reduce costs and increase free cash flow, a significant portion of which can be returned to shareholders as dividends and buybacks, is what investors are looking for. Oh, and don’t forget that important M&A goal: getting a bigger footprint and a more prominent role in the Permian, America’s dominant production area. ONEOK, a midstream company until now primarily focused on moving NGLs and natural gas, earlier this week announced an $18.8 billion deal to acquire Magellan Midstream Partners, which is best known for pipelines that carry refined products and oil raw In today’s RBN blog, we and our friends at East Daley Analytics kick the tires, look under the hood, and weigh in on the potential pros and cons of the deal.
For the past two years we have been monitoring—and blogging about—a cycle of consolidation in the US midstream sector. In we are together and ours five-part series Just the Two of Us, we said that the COVID pandemic spurred midstreamers to reduce capital spending and instead focus on improving the efficiency of existing operations by joining with others that owned adjacent complementary assets, or gave it to the company acquiring a strong establishment in a very desirable production area. . Among other offers, we discussed the plan now implemented by Plains All American and Oryx Midstream to contribute assets to a new crude oil pipeline joint venture operated by Plains in the Permian’s Delaware Basin. We looked too Acquisition of Oasis Midstream by Crestwood Equity Partners, a combination that gave Crestwood more scale and influence in both the Bakken and Delaware; the merger of Altus Midstream and BCP Raptor Holdco LP (EagleClaw Midstream’s corporate parent) into a new entity called Kinetik Holdings which is now Delaware’s largest integrated powerhouse; Acquisition of Navitas Midstream by Enterprise Products Partnerswhich boosted Enterprise’s position in Midland Basin gas gathering and processing; Acquisition of Lucid Energy Group by Targa Resources, a large gas gatherer and processor in northern Delaware; and more recently Planned acquisition of Lotus Midstream by Energy Transferwhich – we’re sensing a theme here – will give the acquiring company an even bigger footprint in the Permian.
Today, we and East Daley Analytics examine ONEOK’s recently announced plan to acquire Magellan Midstream Partners in a cash and stock deal valued at $18.8 billion. The deal will create the second largest company in the United States by market capitalization and the fifth largest by enterprise value behind Energy Transfer, Enterprise Products Partners, Kinder Morgan and Williams. ONEOK will issue $8.8 billion in equity to Magellan’s unitholders (a master limited partnership, or MLP), give them another $5.1 billion in cash and assume Magellan’s $5 billion in debt. The $67.50/unit that Magellan shareholders will receive ($25 in cash and 0.667 ONEOK shares per unit) represents a nice 22% premium over Magellan’s closing price last Friday. Assuming the deal secures all necessary shareholder, unitholder and regulatory approvals, it is expected to close in Q3 2023.
