ONEOK Inc. (NYSE: OKE) said July 25 it will acquire the remaining interest in the West Texas LPG Pipeline, a Permian NGL pipeline system, as part of the midstream service provider's broader strategy in the prolific basin.
The Tulsa, Okla.-based company agreed to acquire 20% interest in West Texas LPG from Martin Midstream Partners LP (NASDAQ: MMLP) for $195 million, which will be funded with cash on hand. ONEOK originally acquired its initial 80% stake in the system from Chevron Corp. (NYSE: CVX) for about $800 million in December 2014.
Terry K. Spencer, ONEOK's president and CEO, said the acquisition is a strategic step in the company's broader Permian Basin strategy for integration.
"A wholly owned West Texas LPG allows ONEOK to more effectively integrate it into the rest of our extensive NGL system, positioning us for future expansion opportunities currently under development," Spencer said in a statement.
The West Texas LPG system consists of about 2,600 miles of NGL pipeline in Texas and New Mexico. The system provides transportation services to the Mont Belvieu market center from nearly 40 third-party natural gas processing plants located in the Permian Basin.
Additionally, ONEOK and Martin Midstream are working on an expansion of West Texas LPG into the Delaware Basin that was announced late last year. The expansion includes construction of a 120-mile, 16-inch pipeline lateral with initial capacity of 110,000 bbl/d and is expected to be completed by third-quarter 2018.
The $200 million project, of which $160 million ONEOK will cover, is supported by up to 40,000 bbl/d of long-term dedicated NGL production from two planned third-party natural gas processing plants.
Following completion of the Delaware expansion and associated volume ramp, the mainline will still have sufficient capacity to accommodate additional interconnects driving future earnings profile, said analysts with Tudor, Pickering, Holt & Co. (TPH).
"With more than 1 million bbl/d of incremental Permian NGL production expected by exit 2021, we expected continued demand for infrastructure despite slate of newbuilds targeted for 2019," TPH analysts said in a research note on July 26.
ONEOK said it expects to close the West Texas LPG acquisition by July 31.
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