Targa to buy Permian midstream assets for up to $1.5 billion

Targa Resources Corp. has agreed on behalf of subsidiary Targa Resources Partners LP to acquire 100% of the membership interests of Outrigger Delaware Operating LLC, Outrigger Southern Delaware Operating LLC, and Outrigger Midland Operating LLC for $565 million cash and up to $935 million in additional cash as potential earn-out payments.

The deal, expected to close in the first quarter, increases Targa’s gross processing capacity to 2 bcfd across the Permian basin by yearend and adds more than 250,000 acres dedicated under long-term contracts from a mix of active operators in the Delaware and Midland basins.

The Outrigger Delaware gas gathering and processing and crude gathering assets are in Loving, Winkler, and Ward counties in Texas. The Delaware basin assets are underpinned by producer dedications of more than 145,000 acres under long-term, largely fee-based contracts, with a weighted average contract life of 14 years.

The Outrigger Delaware assets include 70 MMcfd of processing capacity. Targa plans to connect the Outrigger Delaware assets to the firm’s existing Sand Hills system, extending Targa’s Permian footprint across the Delaware and Midland basins. The firm also plans to evaluate future connections from Outrigger Delaware to its Versado system. Currently, there is 40,000 b/d of crude gathering capacity on the Outrigger Delaware system.

The Outrigger Midland gas gathering and processing and crude gathering assets are in Howard, Martin, and Borden counties in Texas. The Midland basin assets are underpinned by producer dedications of more than 105,000 acres under long-term, largely fee-based contracts, with a weighted average contract life of 13 years. Outrigger Midland currently has 10 MMcfd of processing capacity, and Targa expects to connect the Outrigger Midland assets to Targa’s WestTX system in Martin County. Currently, there is also 40,000 b/d of crude gathering capacity on the Outrigger Midland system.

“The acquisition of the Outrigger Permian assets complements our existing gas gathering and processing footprint very nicely, while expanding our reach deeper into both the Delaware and Midland basins,” commented Joe Bob Perkins, Targa chief executive officer. “The producer acreage that we will serve through this acquisition has decades of drilling inventory in prolific areas, with multiple stacked pay zones.”

Subject to certain performance-linked measures based on existing contracts expected at close and other conditions, additional cash of up to $935 million may be received in 2018 and 2019 by the sellers in potential earn-out payments based on realized gross margin.

The first potential earn-out payment is based on an attractive multiple of realized gross margin from Mar. 1, 2017, to Feb. 28, 2018. The second potential earn-out payment is based on an attractive multiple of realized gross margin from Mar. 1, 2018 to Feb. 28, 2019. The total potential consideration that could be paid to sellers is up to a maximum of $1.5 billion, which includes the initial consideration of $565 million.

Denver-based Outrigger Energy LLC is a midstream firm focused on West Texas, the Rockies, and the Midcontinent, with services including natural gas gathering, compression, processing and treating, NGL fractionation, crude oil gathering, and marketing services.

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