Targa Resources Corp. disclosed the sale of its 25% equity interest in the Gulf Coast Express Pipeline to an undisclosed company on Feb. 3 for $857 million.
The divestiture was viewed as an increasing likelihood by the market, according to to analysts with Tudor, Pickering, Holt & Co. (TPH), given completion of Targa’s “DevCo” buy-in last month and management commentary highlighting the asset as a potential sale candidate. Still, TPH said the price tag for the 2 Bcf/d natural gas pipeline exceeded expectations and should accelerate the simplification of Targa’s capital structure.
“The transaction price comes in well ahead of the previously rumored ~$750 million and reduces the net DevCo outlay to just $68 million (TPHe <1.0x EBITDA multiple) for the remaining Grand Prix and Frac 6 interests,” TPH analysts wrote in a Feb. 4 research note.
The Gulf Coast Express Pipeline, which began operating in September 2019, transports natural gas from the Permian Basin to outside Corpus Christi on the Texas Gulf Coast.
Targa’s stake in Gulf Coast Express, alongside a 20% interest in the Grand Prix NGL Pipeline and 100% interest in the Train 6 fractionator in Mont Belvieu, Texas, was previously part of a development company joint venture (DevCo JV) formed in 2018. On Jan. 10, Targa repurchased its interests in the DevCO JV from investment firm Stonepeak Partners LP for approximately $925 million.
RELATED:
Targa Resources Strikes $925 Million Deal with Stonepeak
The DevCo buy-in materially reduced Targa’s annual cash outflows, according to TPH, while further simplifying the capital stack, with a credit upgrade to its investment-grade likely as the year progresses.
“Though TRGP remains a consensus long among dedicated Energy funds, an investment-grade upgrade may pave the way for potential S&P 500 inclusion as TRGP has recently met the market cap requirement which would likely expand the pool of potential investors,” the TPH analysts wrote.
Targa expects to receive the full proceeds from the sale of its Gulf Coast Express stake in the second quarter following a customary call right period in favor of the other members of the pipeline. Other owners of the Gulf Coast Express include Kinder Morgan Inc., Altus Midstream and DCP Midstream.
TPH analysts estimate Targa’s pro forma excess free cash flow is likely to exceed $900 million as proceeds from the sale combine with the accelerated retirement of the company’s Series A Preferred to offset lost Gulf Coast Express cash flow, according to the firm’s research note.
J.P. Morgan is serving as Targa’s financial adviser and Vinson & Elkins LLP is Targa’s legal counsel on the Gulf Coast Express transaction.
Recommended Reading
Type One Energy, Private Equity Firm Partner to Advance Fusion Energy
2025-02-14 - The partnership between Pine Island New Energy Partners and Type One Energy focuses on identifying and evaluating fusion industry supplier chain companies to grow the sector.
Report: Diamondback in Talks to Buy Double Eagle IV for ~$5B
2025-02-14 - Diamondback Energy is reportedly in talks to potentially buy fellow Permian producer Double Eagle IV. A deal could be valued at over $5 billion.
Bloom Energy, Chart Industries Form CCUS Partnership for Low-Emissions NatGas
2025-02-14 - Bloom Energy and Chart Industries aim to use natural gas and fuel cells to generate power through their carbon capture partnership.
Howard Energy Partners Closes on Deal to Buy Midship Interests
2025-02-13 - The Midship Pipeline takes natural gas from the SCOOP/STACK plays to the Gulf Coast to feed demand in the Southeast.
NOG Spends $67MM on Midland Bolt-On, Ground Game M&A
2025-02-13 - Non-operated specialist Northern Oil & Gas (NOG) is growing in the Midland Basin with a $40 million bolt-on acquisition.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.