Energy Transfer to Buy Crestwood in $7.1 Billion Pipeline Deal

(Reuters) — U.S. energy pipeline operator Energy Transfer on Wednesday agreed to buy rival Crestwood Equity Partners in a deal valued at about $7.1 billion including debt.

Crestwood will give Energy Transfer a larger share of energy transport in three top shale basins, adding about 2 billion cubic feet per day (Bcf/d) of gas-gathering capacity, 1.4 Bcf/d of gas-processing capacity and 340,000 barrels per day (bpd) of crude-gathering capacity.

"These assets are expected to complement Energy Transfer’s downstream fractionation capacity at Mont Belvieu, as well as its hydrocarbon export capabilities from both its Nederland Terminal in Texas and the Marcus Hook Terminal in Philadelphia, Pennsylvania," Energy Transfer said in a statement.

Consolidation in the oil and gas pipeline business has accelerated this year as U.S. production grows and new-pipeline permitting problems make existing operators more valuable.

Shares of Crestwood jumped 4.7% in early trading to $27.43, and Energy Transfer gained 2.1% to $12.82.

The proposed deal continues an acquisition push by Energy Transfer co-founder and majority owner Kelcy Warren, who earlier this year bought smaller rival Lotus Midstream for $1.45 billion. Warren owns 81.2% of the company's general partner and is moving to expand into liquefied natural gas and chemicals.

Both companies are publicly traded master limited partnerships, a corporate structure that pays virtually no corporate income taxes by providing income to unit holders.

The Crestwood deal will give Warren's Energy Transfer a broader footprint in several U.S. shale fields and its first leg into the Powder River basin in Wyoming and North Dakota.

Earlier this year, Energy Transfer rival Oneok Inc. agreed to pay $18.8 billion for Magellan Midstream Partners to gain new access to crude oil transportation and storage markets.

"The industry is in one of the best financial positions it has been in for years from a perspective of cash flow so there is a lot more flexibility to make big acquisitions," Justin Carlson, co-founder of pipeline data experts East Daley Analytics. "More strenuous" U.S. regulations have also made infrastructure operators more valuable, he said.

Crestwood's unitholders will receive 2.07 Energy Transfer common units for each Crestwood common unit, the companies said.

The transaction is expected to close in the fourth quarter of 2023, after which Crestwood unitholders are expected to own about 6.5% of Energy Transfer’s units.

Energy Transfer also expects to achieve at least $40 million in annual cost savings before additional benefits from the deal.

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