The $1.8 billion sale of an Energy Transfer Partners LP unit signaled a further compression of the compression sector. USA Compression Partners LP (USAC) made the acquisition of CDM Resource Management, a deal that nearly doubled the company’s fleet and established a sizable presence in major basins like the Eagle Ford and Rockies.
CDM also is among the select few major players in the high-horsepower market.
Simmons & Co. International’s senior analyst, John Watson, did the math and liked what he saw. The new entity will boast about 3.4 million horsepower (hp), compared with industry leader Archrock Inc.’s 3.9 million hp.
“We view the acquisition positively for the larger compression industry as it becomes less fragmented and resembles more of an oligopoly, likely generating additional pricing power,” he wrote.
Watson added that he expected compression pricing to pick up at a “more fervent pace” this year, in part due to the consolidation aspect of the deal.
Baird analysts ranked the deal “accretive” for Energy Transfer and noted that “the scale and liquidity enhancement of the transaction will allow USAC to reduce leverage and improve its coverage in the interim.”
Mizuho Energy analysts liked the deal, too, though they didn’t love it, calling it a “modest positive” for Energy Transfer. What they liked was that the bulk of the proceeds from USA Compression was cash. What amounted to a buzzkill—maybe just a buzzwound—to Mizuho is that about $450 million of the purchase price comes in the form of USAC units.
What Mizuho viewed as a favorable compression divestment by Energy Transfer was seen as offset by the added complexity of owning a stake in USA Compression. But for the sector, the analysts indicated, it was worthy of a fist bump.
“The transaction marks the first, not the last, step in fully monetizing the compression business,” they wrote.
Joseph Markman can be reached at jmarkman@hartenergy.com or 713-260-5208.
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