Mid-Stream Consolidation with Energy Transfer buying Crestwood Equity Partners in $7.1B All Stock Deal

Pipeline operator Energy Transfer (ET) said Wednesday it had agreed to acquire Crestwood Equity Partners (CEQP) in an all-stock deal valued at around $7.1Billion. The deal includes the assumption of $3.3B of debt. The deal consolidated mid-stream further with ET expanding its natural gas and crude oil transportation network. Clearly the company sees this as an opportune time to buy cheap assets with natural gas prices lower. The company reported second quarter earnings and with natural gas prices down 70% and NGL prices down 45% from the year-ago quarter, the commodity-sensitive portion of ET’s EBITDA saw some red.

Energy Transfer Network Pre Acquisition

The Deal

Under the terms of the deal, Crestwood (CEQP) common unitholders will receive 2.07 Energy Transfer (ET) common units for each Crestwood common unit; upon closing, Crestwood common unitholders would own ~6.5% of Energy Transfer’s outstanding common units.

Stock Market Reaction

  • Crestwood Equity Partners LP (CEQP) 27.33+1.14 (+4.33%)
  • Energy Transfer LP (XOM) 12.84+0.28 (+2.23%)
  • Lunchtime 8/16/23

Looking back ET’s expansion has seen in unitholder dilution, as deals are funded through the issuance of undervalued units to get deals done. Back in April ET issued 44.5 million new units at approximately $12.36 per unit as part of its $1.45 billion Louts Midstream acquisition. It is that dilution factor that is needed to evaluate the value per unit.

From their recent Earnings call management made it clear they were looking at acquisitions.

But I do want to go ahead and expand a little bit on one other item you brought up in there, and that was the M&A side of it. We do still remain very optimistic that you’re going to see consolidation in the midstream space, and that’s something that we feel like we’re very, very good at. You can see from all the acquisitions that we’ve done, we can always make them very accretive. And they’ve got us to where we are today as well as within the organic growth projects that come along with each one of these. So we’re going to continue to stay very focused on that side of it and allocate a lot of time toward that piece of it, too.

Energy Transfer said it expects the acquisition will be immediately accretive to distributable cash flow per unit as well as neutral to its leverage metrics upon closing; similar to Energy Transfer (ET), Crestwood’s (CEQP) cash flows are supported by primarily fee-based revenues from long-term contracts with investment-grade counterparties. Energy Transfer also expects to achieve at least $40M of annual run-rate cost synergies.

Energy Transfer (ET) said this acquisition would extend its position in the value chain deeper into the Williston and Delaware basins. It will also give them entry into the Powder River basin, and complement its 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 Pennsylvania.

ET is still pursuing its Lake Charles LNG project and management expects to file a new export authorization with the Department of Energy this month. ET has already entered into 3.6 million tons per year of LNG offtake agreements and has lined up potential equity partners. Lake Charles shows potential for adding to EBITDA by 2028.

About Energy Transfer

Energy Transfer LP (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with nearly 125,000 miles of pipeline and associated energy infrastructure. Energy Transfer’s strategic network spans 41 states with assets in all of the major U.S. production basins. Energy Transfer is a publicly traded limited partnership with core operations that include complementary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, natural gas liquids (“NGL”) and refined product transportation and terminalling assets; and NGL fractionation. Energy Transfer also owns Lake Charles LNG Company, as well as the general partner interests, the incentive distribution rights and approximately 34% of the outstanding common units of Sunoco LP (NYSE: SUN), and the general partner interests and approximately 47% of the outstanding common units of USA Compression Partners, LP (NYSE: USAC). For more information, visit the Energy Transfer LP website at www.energytransfer.com.

The company was founded by Kelcy L. Warren in 1996 and is headquartered in Dallas, TX.

About Crestwood Equity Partners LP

Houston, Texas, based Crestwood Equity Partners LP (NYSE: CEQP) is a master limited partnership that owns and operates midstream businesses in multiple shale resource plays across the United States. Crestwood is engaged in the gathering, processing, treating, compression and transportation of natural gas; storage, transportation, terminalling, and marketing of NGLs; gathering, storage, terminalling and marketing of crude oil; and gathering and disposal of produced water. For more information, visit Crestwood Equity Partners LP at www.crestwoodlp.com; and to learn more about Crestwood’s sustainability efforts, please visit https://esg.crestwoodlp.com.

Source: Energy Transfer

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