The $1.8 billion sale of an Energy Transfer Partners LP unit signaled a further compression of the compression sector. USA Compression Partners LP (USAC) made the acquisition of CDM Resource Management, a deal that nearly doubled the company’s fleet and established a sizable presence in major basins like the Eagle Ford and Rockies.
CDM also is among the select few major players in the high-horsepower market.
Simmons & Co. International’s senior analyst, John Watson, did the math and liked what he saw. The new entity will boast about 3.4 million horsepower (hp), compared with industry leader Archrock Inc.’s 3.9 million hp.
“We view the acquisition positively for the larger compression industry as it becomes less fragmented and resembles more of an oligopoly, likely generating additional pricing power,” he wrote.
Watson added that he expected compression pricing to pick up at a “more fervent pace” this year, in part due to the consolidation aspect of the deal.
Baird analysts ranked the deal “accretive” for Energy Transfer and noted that “the scale and liquidity enhancement of the transaction will allow USAC to reduce leverage and improve its coverage in the interim.”
Mizuho Energy analysts liked the deal, too, though they didn’t love it, calling it a “modest positive” for Energy Transfer. What they liked was that the bulk of the proceeds from USA Compression was cash. What amounted to a buzzkill—maybe just a buzzwound—to Mizuho is that about $450 million of the purchase price comes in the form of USAC units.
What Mizuho viewed as a favorable compression divestment by Energy Transfer was seen as offset by the added complexity of owning a stake in USA Compression. But for the sector, the analysts indicated, it was worthy of a fist bump.
“The transaction marks the first, not the last, step in fully monetizing the compression business,” they wrote.
Joseph Markman can be reached at jmarkman@hartenergy.com or 713-260-5208.
Recommended Reading
CEO: Coterra ‘Deeply Curious’ on M&A Amid E&P Consolidation Wave
2024-02-26 - Coterra Energy has yet to get in on the large-scale M&A wave sweeping across the Lower 48—but CEO Tom Jorden said Coterra is keeping an eye on acquisition opportunities.
E&P Earnings Season Proves Up Stronger Efficiencies, Profits
2024-04-04 - The 2024 outlook for E&Ps largely surprises to the upside with conservative budgets and steady volumes.
U.S. Shale-catters to IPO Australian Shale Explorer on NYSE
2024-05-04 - Tamboran Resources Corp. is majority owned by Permian wildcatter Bryan Sheffield and chaired by Haynesville and Eagle Ford discovery co-leader Dick Stoneburner.
PrairieSky Adds $6.4MM in Mannville Royalty Interests, Reduces Debt
2024-04-23 - PrairieSky Royalty said the acquisition was funded with excess earnings from the CA$83 million (US$60.75 million) generated from operations.
Diamondback Stockholders All in for $26B Endeavor Deal
2024-04-29 - Diamondback Energy shareholders have approved the $26 billion merger with Endeavor Energy Resources.