Rattler Midstream’s filings said its assets were “contributed by Diamondback” in June and include 528 miles of pipeline across the Midland and Delaware basins. (Source: Hart Energy/Shutterstock.com)
As takeaway capacity continues to constrict Permian Basin oil producers, Diamondback Energy Inc. (NASDAQ: FANG) is looking to its own means to move crude out by pushing its midstream assets into the public spotlight through an IPO.
In early August, Diamondback subsidiary Rattler Midstream filed regulatory documents to take its crude, natural gas and water infrastructure company public. The company also swung a deal enabling it to buy a bigger piece of the EPIC pipeline that will stretch to Corpus Christi, Texas, from Midland, Texas.
Diamondback is among several companies, including Apache Corp. (NYSE: APA) and Exxon Mobil Corp. (NYSE: XOM) subsidiary XTO Energy, to address takeaway capacity through a variety of agreements and joint ventures.
Rattler filed its IPO paperwork Aug. 7, about the same time Diamondback made public its $1.25 billion deal to purchase Ajax Resources LLC. As with its mineral affiliate Viper Energy Partners LP (NASDAQ: VNOM), Diamondback’s CEO, Travis Stice, will head Rattler.
On an Aug. 9 conference call, Stice said he couldn’t talk about Rattler’s IPO due to the Securities and Exchange Commission (SEC) “quiet period” which bars management teams from making predictions or opining about assets.
Rattler’s filings said its assets were “contributed by Diamondback” in June and include 528 miles of pipeline across the Midland and Delaware basins. Diamondback is Rattler’s primary customer and offers 216,000 barrels per day (bbl/d) of crude oil gathering capacity. The infrastructure also consists of fresh water gathering and natural gas compression.
Diamondback and Rattler have recently increased the equity Rattler can buy in EPIC Midstream Holdings LP’s long-haul crude pipeline project.
The EPIC project is a long-haul crude oil pipeline that will be capable of transporting 550,000 bbl/d from Midland, Texas, to Corpus Christi. EPIC is expected to be operational in the second half of 2019.
In late July, Diamondback became a strategic partner in EPIC Midstream. The Permian E&P recently said it doubled its initial equity purchase option in EPIC to 10% as well as its crude commitment on the under-construction line—to 100,000 bbld/d from 50,000 bbl/d.
“Once operational, our equity interest in the EPIC project, upon exercise of our option, is expected to provide us with a steady, oil-weighted cash flow stream and will also provide Diamondback with long-term long-haul transportation capacity for the majority of its Midland Basin crude oil production,” according to Rattler’s SEC filings.
Also in the SEC filings, Rattler said Diamondback made a 15-year acreage dedication in June on its core Permian leasehold. The acreage dedication spans 209,000 gross aces, including 129,000 gross acres in the Delaware Basin and 80,000 gross acres in the Midland Basin.
Rattler will organize as a corporation and will not offer incentive distribution rights or other subordinated units. The midstream company said it is seeking a maximum $100 million offering from common units for its limited partner units and intends to trade on NASDAQ until the ticker “RTLR.”
The Rattler IPO is the latest step by an E&P to address the choke points that are causing high differentials for Permian Basin crude.
On Aug. 8, Apache formed a partnership with Kayne Anderson Acquisition Corp. for the launch of a new midstream company, Altus Midstream LP.
Anchored by Apache’s infrastructure assets, Altus will have the option to participate in five gas, NGL and crude oil pipeline projects from the Permian Basin to various points along the Texas Gulf Coast. Apache will own a 71.1% stake in Altus, which is expected to have a market value of $3.5 billion when the deal closes.
Exxon Mobil’s XTO Energy similarly signed a letter of intent to support the Permian Highway Pipeline Project, according to Kinder Morgan Inc. (NYSE: KMI) on Aug. 9. As a result, XTO will join Apache and Blackstone Energy Partners’ EagleClaw Midstream Ventures LLC in the proposed $2 billion project to provide an outlet for Permian natural gas production.
Darren Barbee can be reached at dbarbee@hartenergy.com.
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