Kinetik Holdings announced a series of transactions on May 9, led by a cash-and-stock deal to acquire Durango Permian infrastructure for an aggregate $765 million. In a related move, Kinetik will divest its 16% equity interest in the Gulf Coast Express (GCX) pipeline to ArcLight Capital Partners for $540 million cash.
The Durango acquisition—along with a new, long-term gathering and processing contract, represents approximately $1 billion of new investment for the company, said Jamie Welch, Kinetik’s president and CEO.
“Following the Durango acquisition and the expected completion of Kings Landing, Kinetik will own and operate over 2.4 billion cubic feet per day of processing capacity, entirely in the Delaware Basin, and approximately 4,600 miles of pipelines across eight counties,” Welch said.
The Durango deal will expand the company’s presence as a pure-play midstream provider in the northern Delaware Basin. Kinetik will pay $315 million in cash and 11.5 million shares of Class C common stock, some of it deferred until July 2025, to seller Morgan Stanley Energy Partners.
Durango’s assets in Eddy, Lea and Chaves counties, New Mexico, include approximately 2,400 miles of gas gathering pipelines and approximately 220 MMcf/d of processing capacity. The Durango assets also bring aboard more than 60 new customers, many private operators, Kinetik said.
Kinetik’s Durango transaction includes a $75 million contingent payment tied to the capital cost for the Kings Landing complex, which is currently under construction. Kings Landing is a new 200 MMcf/d greenfield processing complex in Eddy County, which is expected to be completed in April 2025. The complex will increase Durango’s processing capacity to 420 MMcf/d.
To offset the purchase price, Kinetik is selling its interests in GCX, the company said in a May 9 press release. The purchase price is comprised of $510 million in upfront cash and an additional $30 million deferred cash payment due upon a final investment decision (FID) on a capacity expansion project.
Additionally, Kinetik announced a 15-year agreement to provide gathering and processing services in Eddy County for approximately $200 million. Kinetik will construct low- and high-pressure gathering infrastructure, which is expected to be approximately $200 million of aggregate capital through 2026.
Kinetik anticipates an approximately 5x run-rate EBITDA investment multiple. The contract begins at the end of 2024, starting with gathering services. It extends to processing services starting in the second quarter of 2025.
“Following on from our tremendous success with our recent Lea County, New Mexico system expansion, we are delighted to now announce this series of strategic transactions that further our expansion into New Mexico and significantly increase our footprint across the Northern Delaware Basin,” Welch said.
“Proceeds from the GCX sale and the aggregate issuance of $450 million of Kinetik Class C shares, in two installments, will be reinvested into projects at a mid-single digit EBITDA multiple,” Welch said. “These actions efficiently and accretively recycle cash proceeds from a non-operated asset into highly strategic, operated assets.”
The transactions are expected to be over 10% accretive to free cash flow per share starting in the second half of 2025, with the level of accretion increasing thereafter, which coincides with an expected acceleration of capital returns to shareholders.
The Durango acquisition and new Eddy County agreement also offer full control of plant products, including more than 350 MMcf/d of residue gas and more than 60,000 bbl/d of natural gas liquids. The volumes will provide “significant additional upside value via system optimization, modifications to existing commercial contracts and integration with our pipeline transportation segment,” Welch said.
Recommended Reading
Ithaca Energy to Buy Eni's UK Assets in $938MM North Sea Deal
2024-04-23 - Eni, one of Italy's biggest energy companies, will transfer its U.K. business in exchange for 38.5% of Ithaca's share capital, while the existing Ithaca Energy shareholders will own the remaining 61.5% of the combined group.
Triangle Energy, JV Set to Drill in North Perth Basin
2024-04-18 - The Booth-1 prospect is planned to be the first well in the joint venture’s —Triangle Energy, Strike Energy and New Zealand Oil and Gas — upcoming drilling campaign.
EIG’s MidOcean Closes Purchase of 20% Stake in Peru LNG
2024-04-23 - MidOcean Energy’s deal for SK Earthon’s Peru LNG follows a March deal to purchase Tokyo Gas’ LNG interests in Australia.
Equinor Acquires Stake in Standard Lithium Smackover Projects
2024-05-08 - Equinor’s transaction, completed effective May 7, includes interests in Standard Lithium’s flagship South West Arkansas Project and East Texas properties.
Crescent Point Divests Non-core Saskatchewan Assets to Saturn Oil & Gas
2024-05-07 - Crescent Point Energy is divesting non-core assets to boost its portfolio for long-term sustainability and repay debt.