EnLink to acquire Tall Oak Midstream subsidiaries for $1.55B

A subsidiary of the EnLink Midstream companies, EnLink Midstream Partners LP (NYSE: ENLK) (the Partnership) and EnLink Midstream LLC (NYSE: ENLC) (the General Partner), has signed definitive agreements to acquire subsidiaries of Tall Oak Midstream LLC for $1.55 billion.

The purchase price will be paid in installments, with the first installment of $1.05 billion paid at closing and the final installment of $500 million paid no later than the first anniversary of the closing date with the option to defer $250 million of the final installment up to 24 months following the closing date.

The Tall Oak assets serve gathering and processing needs in the growing STACK and Central Northern Oklahoma Woodford (CNOW) plays in Oklahoma and are supported by long-term, fixed-fee contracts with acreage dedications that have a remaining weighted-average term of approximately 15 years.

Additionally, a subsidiary of Devon Energy Corp. (NYSE: DVN) has signed a definitive agreement to acquire 80,000 net surface acres, with up to 10 prospective zones, in the Anadarko Basin STACK play from Felix Energy LLC for $1.9 billion, subject to certain adjustments. The Felix acreage is dedicated to the Tall Oak system, making it the largest customer of this system. The acquisition of Felix will enhance Devon’s size and scale in the STACK play by adding approximately 80,000 net surface acres immediately north and northeast of its legacy STACK/Cana position.

Tall Oak’s assets are strategically located in the core areas of the STACK and CNOW plays. The assets include two gathering and processing systems and will include a rich gas pipeline currently under construction that will connect the two systems.

  • The Chisholm Plant, which serves the STACK play, is a cryogenic gas processing plant with a current capacity of 100 million cubic feet of gas per day (MMcf/d). The facility is currently being expanded by an additional 200 MMcf/d, which is expected to be completed in the third quarter of 2016. Depending on future volume requirements, the Chisholm Plant could be expanded by an additional 400 MMcf/d for a total processing capacity of 700 MMcf/d. The plant is connected to a 200-mile, low- and high-pressure gathering system with compression facilities. Additional gathering pipelines and compression facilities are currently under construction.

  • The Battle Ridge Plant, which provides EnLink with an entrance into the CNOW play, is a cryogenic gas processing plant with a current capacity of 75 MMcf/d. The plant is connected to a 175-mile, low- and high-pressure gathering system with compression facilities. Additional gathering pipelines and compression facilities are currently under construction.

  • A 42-mile, 16-inch high-pressure header pipeline, with a total capacity of 150 MMcf/d is under construction to connect Tall Oak’s Chisolm Plant and Battle Ridge systems. The pipeline, expected to be in service by year-end 2015, will provide customers with additional operational flexibility and access to premium residue markets.

Under the terms of the definitive agreements, the Partnership and the General Partner will jointly acquire subsidiaries of Tall Oak Midstream, LLC for $1.55 billion. Approximately 84% of the combined acquisition will be acquired by the Partnership and the remainder will be acquired by the General Partner. The purchase price will be paid in installments, with the first installment of $1.05 billion paid at closing and the final installment of $500 million paid no later than the first anniversary of the closing date with the option to defer $250 million of the final installment up to 24 months following the closing date.

The Partnership plans to fund the first installment through its issuance of $750 million aggregate amount of convertible preferred units to TPG, a global private investment firm, and funds managed by the Merchant Banking Division of Goldman Sachs and via the Partnership’s revolving credit facility in an amount equal to $50 million. The General Partner plans to issue $250 million of ENLC common units directly to the sellers at closing. The Partnership plans to fund the second installment with proceeds from the monetization of non-core assets, preferred equity issuances or other equity issuances. EnLink expects this financing structure will enable it to maintain its investment-grade credit profile.

In connection with the equity issuance, the size of the board of directors of the Partnership’s general partner will expand from nine to 11 members and each of Devon and TPG will have the right to appoint one new member.

The transaction, which is expected to be completed in the first quarter of 2016, is subject to the satisfaction of customary closing conditions, including applicable regulatory approvals, as well as the completion of Devon’s acquisition of Felix, which is expected to occur concurrently with the Tall Oak closing.

Jefferies LLC is acting as EnLink’s primary financial and technical advisor on the Tall Oak transaction. Morgan Stanley & Co. LLC is also acting as financial advisor and was the primary advisor for the financing transactions. Evercore is acting as financial advisor to the Partnership’s Conflicts Committee.

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