Energy Transfer LP (NYSE: ET ) and Crestwood Equity Partners LP (NYSE: CEQP ) revealed in a joint statement Wednesday that they have entered into a definitive merger agreement that will see Energy Transfer acquire Crestwood in an all-equity transaction.
The deal is valued at approximately $7.1 billion, including the assumption of $3.3 billion of debt, based on the August 15 closing price, the statement noted. Under the terms of the agreement, Crestwood common units will receive 2.07 energy transfer common units for each Crestwood common unit, according to the statement.
The deal is expected to close in the fourth quarter of 2023, subject to Crestwood shareholder approval, regulatory approvals and other customary closing conditions, according to the statement, which said that upon closing, it is expected that the common units of Crestwood own approx. 6.5 percent of Energy Transfer’s outstanding common units.
“The Crestwood system includes gathering and processing assets located in the Williston, Delaware and Powder River basins, including approximately 2 billion cubic feet per day of gas gathering capacity, 1.4 billion cubic feet per day of processing capacity of gas and 340,000 barrels per day of crude oil collection capacity,” the statement said.
“If consummated, this transaction would expand Energy Transfer’s position in the value chain deeper into the Williston and Delaware basins while providing entry into the Powder River Basin,” he added.
“These assets are expected to complement Energy Transfer’s downstream fractionation capacity at Mont Belvieu, as well as its hydrocarbon export capabilities from both its Nederland terminal in Texas and the Marcus Hook terminal in Philadelphia, Pennsylvania,” he continued.
The statement also highlighted that the deal is expected to bring benefits to Energy Transfer’s NGN and Refined Products and Crude Oil businesses, “with the addition of strategically located terminal and storage assets, which include approximately 10 million of barrels of storage capacity, as well as trucks and rail terminals”.
“These systems are anchored by predominantly investment-grade producer customers with firm, long-term contracts and significant acreage dedications,” the statement said.
The transaction is expected to be immediately positive to distributable cash flow per unit, as well as neutral to Energy Transfer’s leverage metrics upon closing, according to the statement.
“Similar to Energy Transfer, Crestwood’s cash flows are primarily supported by fee-based income from long-term contracts with investment-grade counterparties,” the statement noted.
“Furthermore, with the increase in scale and the strengthening of the balance sheet, Energy Transfer expects to be able to improve the current cost of financing the debt securities acquired. Structured as a 100 percent unit-for-unit exchange, the transaction is tax efficient for Crestwood’s unitholders and the two partnerships are expected to build long-term value through the combination,” he added.
“Energy Transfer also expects to achieve at least $40 million per year of annual cost synergies before additional benefits from financial and business opportunities,” he continued.
When asked for comment on the deal, Enverus Intelligence Research Vice President Ryan Hill told Rigzone, “CEQP has a basin-wide gas and water infrastructure in the Bakken that is particularly aligned with public actions CHRD and ERF”.
“We expect water volumes to continue to increase as activity moves away from the Bakken core, driven primarily by CHRD and Grayson Mill,” he added.
“ET will also benefit from adding exposure to the best economic and growth engine for US oil, the Permian Basin,” he continued.
On August 15, Energy Transfer shares closed at $12.56 and Crestwood shares at $26.19. On August 16, shares of the former closed at $12.77 and the latter at $27.39.
In March of this year, Energy Transfer disclosed that it had entered into a definitive agreement with Lotus Midstream LLC to acquire the company from a subsidiary of EnCap Flatrock Midstream.
In that statement, Energy Transfer highlighted that the deal was valued at approximately $1.45 billion and noted that the consideration for the transaction will consist of $900 million in cash and approximately 44.5 million transfer common units of energy recently emitted.
“Energy Transfer’s acquisition of Lotus Midstream’s Centurion pipeline assets will increase the partnership’s footprint in the Permian Basin and provide greater connectivity for its crude oil transportation and storage businesses,” he said Energy Transfer in its press release in March.
“Centurion’s assets, located in some of the most active areas of the Permian Basin, provide significant gathering volumes from key producers while improving energy transfer access to key downstream markets with consistent sources of demand “, added.
“The assets provide direct access to major hubs such as Cushing, Midland, Colorado City, Wink and Crane. The system is anchored by large-cap producing customers with firm, long-term contracts and significant acreage commitments,” he continued.
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