[Editor's note: This story was updated at 9:24 a.m. CDT June 25.]
Archrock Inc. revealed a series of A&D transactions June 24 that included Hilcorp Energy Co. Founder Jeffery D. Hildebrand joining the Houston-based company’s board.
In its first transaction, Archrock agreed to the cash-and-stock acquisition of Elite Compression Services LLC worth roughly $410 million. Elite, a rival of Archrock, is a portfolio company of JDH Capital Co. based in Victoria, Texas.
The Elite acquisition includes about 430,000 of predominately large-horsepower (hp) compression assets located primarily in the Eagle Ford Shale. In conjunction with the transaction, Archrock said it will sell about 80,000 active and idle compression hp to Harvest Midstream Co. for $30 million in cash.
Additionally, the company said energy industry veteran Hildebrand, currently serving as executive chairman of Hilcorp which is affiliated with both JDH Capital and Harvest Midstream, will join its board of directors upon closing of the transactions.
“Archrock and Elite have been fantastic service providers of ours for many years, and we are pleased to be partnering with a company that is aligned with our strategy of natural gas production growth and best in class midstream operations,” Hildebrand said in a statement June 24. “They have sufficient scale, experience and capabilities to grow with us over time.”
The addition of Elite increases Archrock’s compression asset base to about 4.4 million total hp from 4 million as of March 31, according to analysts with Capital One Securities. The analysts estimate roughly 90% of the new hp revenues are generated by Hilcorp or Marathon Oil Corp.
“[The Elite] transaction is accretive to earnings and free cash flow per share and should enable [Archrock] to continue its plan of deleveraging, reaching less than 4x debt/EBITDA in 2020 while also increasing the dividend 10%-15% on an annual basis through 2020 with a dividend coverage ratio greater than 2x,” the analyst wrote in a June 24 research note.
The Capital One analysts also believe the Elite footprint complements Archrock’s existing portfolio of assets.
Elite’s hp assets are mostly located in the Eagle Ford and South Texas region with smaller percentages in the Permian Basin, Scoop/Stack and Marcellus/Utica. The units are over 80% contracted for 3 or more years with “blue-chip customers,” said Brad Childers, Archrock’s president and CEO.
“This transaction adds basin density in our core areas, with more than 70% of the units deployed in the Eagle Ford and South Texas region, and the concurrent sale of noncore equipment further standardizes our asset portfolio,” Childers said in a statement on June 24.
Childers added the acquired Elite assets are estimated to add roughly $55 million of annual EBITDA, including $5 million in cost synergies.
Archrock expects to close the transactions during third-quarter 2018. The company will fund the Elite acquisition with roughly $205 million in cash and about 21.7 million new Archrock shares issued directly to the seller.
Citi is exclusive financial adviser to Archrock for the transactions. Latham & Watkins is the company’s legal adviser. Meanwhile, Intrepid Partners LLC is exclusive financial adviser and Kirkland & Ellis is legal adviser to JDH Capital and Elite.
Emily Patsy can be reached at epatsy@hartenergy.com.
Recommended Reading
Dominion Energy Grows Virginia Solar Energy Portfolio
2024-04-02 - Dominion Energy will own or acquire four Virginia solar projects, which have a total capacity of 329 megawatts, the company says.
First Solar Gunning for $1B More in 2024 Sales
2024-02-28 - Solar module manufacturer First Solar forecasts 2024 net sales of between $4.4 billion to $4.6 billion, with annual volumes sold ranging from 15.6 gigawatts (GW) to 16.3 GW.
Solar Panel Tariff, AD/CVD Speculation No Concern for NextEra
2024-04-24 - NextEra Energy CEO John Ketchum addressed speculation regarding solar panel tariffs and antidumping and countervailing duties on its latest earnings call.
Solar Sector Awaits Feds’ Next Move on Tariffs
2024-04-25 - A group of solar manufacturers want the U.S. to impose tariffs to ensure panels and modules imported from four Southeast Asian countries are priced at fair market value.
Primergy Solar Secures $588MM for Texas Solar Project
2024-03-11 - Primergy will develop the Ash Creek Solar project in Hill County and signed a power purchase agreement with Microsoft.