Energy Transfer agrees $1.4bn Lotus Midstream deal

June 2023 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

June 2023 Issue

In a move that will boost the company’s pipeline portfolio in the US Permian basin, Energy Transfer LP has agreed to acquire Lotus Midstream LLC from an affiliate of EnCap Flatrock Midstream in a deal worth $1.45bn.

The deal is expected to close in the second quarter of 2023, subject to regulatory approval and customary closing conditions. Energy Transfer will pay $900m in cash for Lotus and the rest of the deal will be financed through 44.5 million newly issued shares.

Energy Transfer said the Centurion Pipeline Company LLC, an integrated, crude midstream platform located in the Permian Basin, owned and operated by Lotus Midstream, with a capacity of nearly 1.5 million barrels per day, will add 3000 miles of crude gathering and transportation pipelines to its network. The deal will raise Energy Transfer’s storage capacity in Midland, Texas by 2 million barrels, the company said. The deal will also see Energy Transfer acquire a 5 percent equity interest in the Wink to Webster Pipeline, a 650-mile system that transports more than 1 million barrels of crude oil and condensate per day from the Permian Basin to the Gulf Coast.

Energy Transfer’s acquisition of Lotus Midstream’s Centurion Pipeline assets will increase the Partnership’s footprint in the Permian Basin and provide increased connectivity for its crude oil transportation and storage businesses. The Centurion assets, located across some of the most active areas of the Permian Basin, provide significant gathering volumes from key producers while also enhancing Energy Transfer’s access to key downstream markets with consistent sources of demand. The assets provide direct access to major hubs 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.

The Centurion pipeline system is an integrated network of crude oil gathering and transportation pipelines that extend from southeast New Mexico across the Permian Basin of West Texas to Cushing, Oklahoma.

Additionally, upon closing, Energy Transfer expects to begin construction on a 30-mile pipeline project that will allow Energy Transfer and its customers the ability to originate barrels from its Midland terminals for ultimate delivery to Cushing. This project is expected to be completed in the first quarter of 2024.

Energy Transfer expects the deal to be immediately accretive to free cash flow and distributable cash flow per unit as well as neutral to Energy Transfer’s leverage metrics. Lotus Midstream cash flows are supported by fee-based revenues from fixed-fee contracts.

“Oil and gas have been in my blood my entire life,” said Mackie McCrea, co-chief executive of Energy Transfer. “I am very excited about the future of Energy Transfer as we continue to play a critical role in meeting the energy needs of our country and the world.”

“We are thankful for the opportunity provided by EnCap Flatrock to have grown and developed Centurion Pipeline,” said Mike Prince, chief executive of Lotus Midstream. “We have had the good fortune to work alongside outstanding and dedicated people, who are responsible for Centurion’s collective success.”

“We are pleased to have reached agreement with Energy Transfer for the sale of Lotus Midstream,” said Greg King, managing partner of EnCap Flatrock. “Mike, Emily, Jen and the Lotus team built a fantastic business. We are grateful for their partnership and are thankful to our investors for their support of this significant investment for EnCap Flatrock.”

Richard Summerfield