Crestwood Equity Partners LP agreed to sell its Marcellus assets to Antero Midstream Corp. on Sept. 12 for $205 million in cash, marking another sale of noncore assets by the Houston-based company.
“This timely and market-based divestiture is another strategic transaction that highlights Crestwood’s long-term commitment to maximizing unitholder value through portfolio optimization and redeployment of proceeds from legacy noncore assets to further strengthen our balance sheet and improve financial flexibility for unit repurchases and higher returning investment opportunities in our core areas,” commented Robert G. Phillips, founder, chairman and CEO, in a Crestwood release.
“Many of Crestwood’s peer-group leading operational practices were developed in the Marcellus and form the basis of the best-in-class operations program across our midstream G&P portfolio.”—Robert G. Phillips, Crestwood Equity Partners LP
Over the past 18 months, Crestwood has strategically enhanced its asset portfolio through a series of A&D transactions to build competitive scale in the Williston, Delaware and Power River basins. The strategy included acquisitions of Oasis Midstream Partners, Sendero Midstream and Crestwood Permian Basin Holdings LLC (CPJV), which was a 50:50 joint venture between Crestwood and First Reserve.
“Today’s announcement highlights our confidence in the portfolio achieving our long-term leverage ratio target of sub 3.5x in 2023 and demonstrates our commitment to generating accretive unitholder returns and solidifying our financial flexibility for the future,” Phillips said on Sept. 12.
Crestwood’s Marcellus natural gas gathering and compression assets are located in West Virginia in Doddridge and Harrison counties. The assets are comprised of a legacy gas system that was acquired by Crestwood from Antero Resources Corp. in 2012 for $376.8 million.
Antero Resources formed Antero Midstream in 2012 to service its rapidly increasing natural gas and NGL production in the Appalachian Basin. Paul Rady, chairman and CEO of Antero, said the transaction on Sept. 12 represents a bolt-on acquisition that is estimated to be more than 10% accretive to free cash flow after dividends through 2026.
“The acquisition is consistent with Antero Midstream’s strategy of investing in infrastructure in the Marcellus, the lowest cost shale play, for high visibility customers, particularly Antero Resources,” Rady said. “Importantly, the assets include underutilized gathering and compression capacity for capital efficient development from both Antero Resources and other third parties.”
Antero Midstream said the assets to be acquired include 72 miles of dry gas gathering pipelines and nine compressor stations with roughly 700 MMcf/d of compression capacity. Current throughput on the system is about 200 MMcf/d, resulting in significant available capacity for growth without significant capital investment, according to the Antero Midstream release.
“I would like to personally thank Bob Phillips and Crestwood for their investment in the midstream infrastructure in the Marcellus during Antero’s infancy.”—Paul Rady, Antero Midstream
Crestwood noted that the Marcellus assets have been impacted in recent years by Crestwood’s anchor producer focusing development activity on the rich gas window of the southwest Marcellus Shale. As a result, Crestwood said the assets have been on natural field decline since 2017 and are noncore to Crestwood’s long-term growth strategy of becoming a leading midstream operator in the Williston, Delaware, and Power River basins.
“Over the past 10 years, our employees in the Marcellus Shale have done an incredible job to build and operate a premier natural gas gathering and compression system, safely and sustainably. Many of Crestwood’s peer-group leading operational practices were developed in the Marcellus and form the basis of the best-in-class operations program across our midstream G&P portfolio. I would like to personally thank these employees for their dedication and loyalty,” Phillips added on Sept. 12.
In a separate release, Rady further added, “I would like to personally thank Bob Phillips and Crestwood for their investment in the midstream infrastructure in the Marcellus during Antero’s infancy. Their high quality assets, safety and environmental record, and loyalty over the last 10 years demonstrate Crestwood's dedication to providing quality midstream services.”
The acquisition adds approximately 425 undeveloped drilling locations and 120,000 gross dedicated acres from Antero Resources primarily in Harrison County. The deal is also expected to increase Antero Midstream’s compression capacity by 20% and gathering pipeline mileage by 15%.
The transaction is expected to close the fourth quarter and represents a multiple of over 7 times 2023E adjusted EBITDA, according to the Crestwood release. For Antero Midstream, the company said the transaction multiple was at approximately 6x next 12 months estimated adjusted EBITDA, excluding synergies.
Crestwood intends to use the proceeds from the Marcellus sale to enhance financial flexibility through a combination of debt reduction and opportunistic common unit repurchases.
Antero Midstream will finance the acquisition with borrowings under the company’s revolving credit facility.
Locke Lord LLP served as legal adviser to Crestwood. Vinson & Elkins LLP served as legal adviser to Antero Midstream.
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