(Bloomberg) — Billionaire Kelcy Warren’s Energy Transfer LP will buy Crestwood Equity Partners LP in a $7.1 billion all-equity deal that will create a major expansion of its pipeline networks in the US.
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The deal will expand Energy Transfer’s position in the Williston Basin of Montana and North Dakota and the Permian Basin of western Texas and New Mexico, while providing access to Wyoming’s Powder River Basin, according to a statement Wednesday. Crestwood’s system includes approximately 2 billion cubic feet per day of gas collection capacity and 340,000 barrels per day of crude oil.
Shares of Energy Transfer were up about 2% as of 10:19 a.m. in New York, and Crestwood was up about 5%.
The US energy sector has seen a flare-up of dealing after producers have made huge profits in recent years, bringing cash to the table. Pipeline operators are part of the activity, as the transition to renewable energy makes it unlikely that major new infrastructure will be built, even if offtake demand remains robust, as shale producers look to maintain top-quality drilling sites. In May, Oneok Inc. has agreed to purchase Magellan Midstream Partners LP in an $18.8 billion cash and stock transaction pending shareholder approval.
Read more: Oil Patch ready for Buyout Wave as US drillers seek new land
Warren, 67, has been bargain-hunting for more than three years. Even before Wednesday’s announcement, he had committed more than $11 billion to pick up pipelines and related assets in the Permian area, Gulf Coast and Great Plains. The value of pipeline networks has continued to increase due to the need to connect remote wells to population centers and export facilities.
The Crestwood deal includes the assumption of $3.3 billion in debt, according to the statement. Under the terms of the deal, which is expected to close in the fourth quarter, Crestwood common stock holders will receive 2.07 Energy Transfer common units for each Crestwood common unit. Post-closing, Crestwood common stockholders are expected to own approximately 6.5% of Energy Transfer’s outstanding common stock.
“We view the deal as neutral for ET,” Elvira Scotto, an analyst at RBC Capital Markets, said in a report. “ET units are likely to underperform given the all-equity deal.”
BofA Securities acted as sole financial advisor to Energy Transfer and Kirkland & Ellis LLP served as legal counsel. Intrepid Partners LLC and Evercore acted as financial advisors to Crestwood and Vinson & Elkins LLP served as legal counsel.
(Adds analyst commentary in seventh paragraph)
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