- Prior to the transaction, Crestwood Holdings, which is controlled by First Reserve Corporation, owned 100% of Crestwood's general partner ("Crestwood GP") and approximately 42% of Crestwood's outstanding limited partner units.
Crestwood Midstream Partners LP (NYSE: CMLP) announced that it has purchased the remaining 65% interest in Crestwood Marcellus Midstream LLC ("CMM") from Crestwood Holdings Partners LLC ("Crestwood Holdings") for $258 million. The transaction is expected to be 7-8% accretive to Crestwood's 2013 distributable cash flow on a fully diluted basis and was funded with $129 million of cash drawn on Crestwood's existing revolving credit facility and approximately 6.2 million new Crestwood Class D units ("Class D Units") issued to Crestwood Holdings. As a part of the consideration received for the transaction, Crestwood Holdings is maintaining its 2% general partner interest in Crestwood. Crestwood does not expect any additional capital markets activity related to this transaction.
Prior to the transaction, Crestwood Holdings, which is controlled by First Reserve Corporation, owned 100% of Crestwood's general partner ("Crestwood GP") and approximately 42% of Crestwood's outstanding limited partner units. After the transaction, Crestwood Holdings owns approximately 47% of Crestwood's outstanding limited partner units taking into account the new Class D Units. The Class D Units, substantially similar to Crestwood's existing Class C Units, allow for the payment of quarterly distributions in cash or through the issuance of additional Class D Units at the discretion of Crestwood. The Class D Units will begin receiving distributions with the first quarter 2013 distribution, payable in the second quarter 2013, and will maintain the pay-in-kind feature until they convert to common units on a one-for-one basis on March 1, 2014. Crestwood Holdings plans to use the cash portion of the purchase price to reduce debt, which will provide Crestwood Holdings incremental flexibility to continue its support of future Crestwood growth through incremental capital investment.
The $258 million purchase price reflects an enterprise value of $525 million for 100% of CMM, including net CMM debt of approximately $130 million, and implies a transaction value of approximately 8.9 times estimated CMM 2013 earnings before interest, taxes, depreciation and amortization ("EBITDA"), which is consistent with comparable transactions in the midstream sector. The transaction was unanimously approved by the Crestwood GP Conflicts Committee, comprised entirely of independent directors, which retained Robert W. Baird & Co. Incorporated as its independent financial advisor to assist in evaluating the transaction and to render a fairness opinion. Additionally, the Conflicts Committee engaged the law firm of Akin Gump Strauss Hauer & Feld LLP to serve as its legal counsel.
"This acquisition is the first drop down transaction for Crestwood Holdings which shows the benefit of First Reserve's long term support and substantially increases Crestwood's exposure to the rich gas area of the Marcellus Shale region," stated Robert G. Phillips, President and Chief Executive Officer of Crestwood's general partner. "When we acquired the Antero Resources Appalachian Corporation ('Antero') Marcellus Shale midstream assets in March 2012 for $382 million, we structured the CMM joint venture to allow Crestwood to acquire an interest in an early stage, high-growth Marcellus Shale gathering business without significant stress on Crestwood's balance sheet. The Antero acquisition has exceeded our expectations with total gathering volumes increasing from approximately 200 million cubic feet per day ('MMcf/d') in early 2012 to almost 400 MMcf/d at the end of 2012, and we expect this significant volume growth to continue in 2013 based on the latest development plans from Antero. The recently completed $95 million Enerven compression acquisition added an additional component to our 2013 growth plans and supported the rationale to accelerate the drop down of Crestwood Holdings' interest in CMM into Crestwood. By retaining the Class D Units and materially increasing its ownership stake in the Partnership, Crestwood Holdings has shown its continued commitment to support and participate in the long term growth of Crestwood," concluded Phillips.
Crestwood's 2013 Marcellus Shale Outlook
With the completion of this transaction, Crestwood now owns 100% of CMM's natural gas gathering, compression and dehydration business located largely in the rich gas window of the southwestern core of the Marcellus Shale play. The assets consist of approximately 40 miles of low pressure gathering pipeline and 43,000 horsepower of compression assets in Harrison and Doddridge Counties, West Virginia, supported by long term, 100% fixed-fee contracts with Antero covering approximately 136,000 net acres (the "Eastern Area of Dedication") with seven year minimum volume guarantees and the rights to acquire additional Antero midstream assets on adjacent acreage (the "Western Area"). Antero is currently running twelve rigs on its West Virginia acreage and continues its aggressive development of properties dedicated to Crestwood and in surrounding areas.
At year-end 2012, spot volumes on Crestwood's Marcellus Shale gathering systems were approximately 400 MMcf/d and are expected to exceed 500 MMcf/d by the end of 2013 with the connection of approximately 60 to 70 new wells. Based upon Antero's current 2013 drilling and development plan in the Eastern Area of Dedication, Crestwood expects to expand its low pressure gathering systems with an additional 18 miles of pipeline. In addition to the four compressor stations acquired from Enerven, which are expected to add approximately $11 million to $12 million of EBITDA in 2013, Crestwood also expects to add at least two new compressor stations in the Eastern Area of Dedication by year end 2013. Crestwood currently expects the capital expenditures for this development to be in the range of $70 million to $80 million, and Crestwood intends to primarily utilize CMM's $200 million revolving credit facility, which will remain in effect post-transaction and is non-recourse to Crestwood, to finance these organic growth capital expenditures.
Additionally, Crestwood is in early discussions with Antero regarding the accelerated development of midstream infrastructure in the Western Area including the addition of incremental compressor stations that would materially increase total Marcellus Shale gathering capacity by year end 2013. The potential for continued infrastructure development in the Western Area illustrates the strength of Crestwood's relationship with Antero and the long term organic growth potential for Crestwood's Marcellus Shale position.
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