ONEOK Inc has signed an agreement to buy Brazos Midstream’s natural gas gathering and processing assets in the Permian Basin for $4.425 billion in cash, enabled by a new $9 billion minority equity investment from Apollo Global Management Inc.
The Brazos system will more than double ONEOK’s processing capacity in the Permian’s Midland sub-basin to about 2.3 billion cubic feet per day including plants under construction, a joint statement said.
“The acquired Brazos Midland assets create a scaled, integrated Permian Midland Basin platform that strengthens ONEOK’s position in one of the most active and economic producing regions in North America”, the companies said.
“Supported by approximately 600,000 dedicated acres under long-term fixed-fee contracts with a weighted average remaining term of more than 12 years, the system provides substantial visibility to future volume growth and is currently supported by 14 active drilling rigs from leading Permian producers including ExxonMobil, Diamondback Energy and Double Eagle.
“Following completion of the Cassidy II processing plant expected in the third quarter of 2027, the Brazos Midland system will include approximately 700 miles of gathering infrastructure and 1.2 billion cubic feet per day of processing capacity across seven core Permian Midland Basin counties.
“Through the acquisition, ONEOK also obtains a Permian Midland Basin-wide area of mutual interest with a key private producer, creating additional opportunities to capture future growth”.
The acquisition will accelerate ONEOK’s “mid- to high-single-digit adjusted EBITDA growth target over the next five to seven years and accelerates ONEOK’s flexibility to increase capital returns to shareholders, including through potential dividend increases and share buybacks”, the statement said.
“The combination of this acquisition with the minority equity investment demonstrates our commitment to creating shareholder value while accelerating our deleveraging to 3.25 times debt-to-EBITDA, further enhancing our balance sheet”, said ONEOK president and chief executive Pierce H. Norton II.
Tulsa, Oklahoma-based ONEOK’s concurrent agreement with New York City-based Apollo involves a return capped at a seven percent IRR for the first nine years of the investment, the statement said.
“Under the terms of the agreement, Apollo will invest $9 billion in exchange for a Class B interest in a newly formed holding company, ONEOK Holdings LLC (HoldCo), which is structurally subordinate to the company’s debt”, the statement said. “The Class B interest is expected to receive 15 percent of quarterly cash flow from ONEOK LLC (OpCo) operations.
“Because those distributions are expected to exceed the Class B capped return of seven percent IRR, the Class B capital account balance is expected to substantially decline over time”.
“ONEOK has the option each quarter to accelerate the Class B investor capital paydown by electing to distribute up to 20 percent of quarterly cash flow from OpCo’s operations to the Class B interest, subject to certain conditions”, it added. “The Class B interest carries limited consent rights related to HoldCo, has no board representation or liquidation preference and is subordinate to all ONEOK senior debt”.
As part of the transactions, ONEOK intends to settle $5 billion in outstanding debt. Separately on Tuesday it announced cash tender offers to redeem up to $2 billion of debt securities, toward the $5 billion debt paydown target.
ONEOK expects to complete the acquisition by yearend subject to customary closing conditions including federal antitrust clearance.
source: RIGZONE