Energy Transfer to acquire WTG for $3.3bn

August 2024 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

August 2024 Issue

In a move that will expand its already sprawling network in the Permian Basin, Energy Transfer LP has agreed to buy WTG Midstream in a $3.25bn deal.

The deal will see Energy Transfer acquire the company from affiliates of Stonepeak, the Davis Estate and Diamondback Energy, Inc for around $2.45bn in cash and approximately 50.8 million newly issued Energy Transfer common units worth around $800m. The transaction is expected to close in the third quarter of 2024, subject to regulatory approval and customary closing conditions.

The cash-and-stock acquisition includes eight gas processing plants with 1.3 billion cubic feet per day (cf/d) of capacity, as well as two plants under construction with 400 million cf/d of capacity. WTG is engaged in providing midstream services including wellhead gathering, intra-basin transportation and processing services. The deal also includes more than 6000 miles of gas gathering lines in some of the most active areas of the Midland Basin, including Martin, Howard, Upton, Reagan and Irion counties, and a 20 percent interest in the 125,000 barrels per day (b/d) BANGL natural gas liquids (NGL) pipeline, which is expandable to over 300,000 b/d, the companies said.

Diamondback, through its wholly-owned subsidiary Rattler Midstream LP, has owned a 25 percent stake in WTG since October 2021. This sale represents around a 3.5x multiple on invested capital for Diamondback. The company will receive about $375m upon completion of the deal. Proceeds from the transaction will be used to reduce debt associated with the pending Endeavor Energy Resources, L.P. merger.

“Not only has our partnership generated an outsized economic return, but WTG’s gas gathering and processing system continues to support Diamondback’s substantial activity on our dedicated acreage,” said Travis Stice, chairman and chief executive of Diamondback. “We are excited to further expand our relationship with Energy Transfer and expect a smooth operational transition.”

According to Energy Transfer, the acquisition is expected to provide “future upside” as the basin continues to develop on and around its infrastructure. The transaction is expected to increasingly add incremental revenue from downstream NGL transportation and fractionation fees. The company said it expects the WTG assets to add approximately $0.04 of distributable cash flow (DCF) per common unit in 2025, growing to approximately $0.07 per common unit in 2027. WTG’s cash flows are supported by a high-quality customer base, predominantly investment grade, with an average contract life of more than eight years.

The acquisition also includes a 20 percent interest in the BANGL Pipeline, a roughly 425 mile natural gas pipeline connecting the Permian Basin to markets on the Texas Gulf Coast. Energy Transfer is looking to build a deepwater port along the Texas coast.

Energy Transfer owns and operates one of the largest and most diversified portfolios of energy assets in the US, with more than 125,000 miles of pipeline and associated energy infrastructure. Energy Transfer’s strategic network spans 44 states with assets in all the major US production basins.

There has been a glut of deals in the US oil & gas industry over the past year, with a significant amount of activity in the Permian basin, where many oil producers are attempting to secure high-quality inventory. Among North American midstream companies, Energy Transfer’s rival Williams in December agreed to buy gas storage assets near the US Gulf Coast for $1.95bn, and in March US gas producer EQT agreed to buy Mountain Valley Pipeline developer Equitrans Midstream in a $5.5bn deal.

Last year, Energy Transfer also bought Crestwood Equity Partners for $7.1bn, Lotus Midstream for $1.45bn, while its affiliate, Dallas-based Sunoco, acquired NuStar Energy in a $7.3bn deal.

Diamondback is an independent oil and natural gas company headquartered in Midland, Texas focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.

Richard Summerfield