Atlas Pipeline to buy Eagle Ford Shale midstream business for $1B

Source:Atlas Pipeline Partners, L.P.

Atlas Pipeline Partners, L.P. (NYSE: APL) ("APL", "Atlas Pipeline", or the "Partnership") has executed a definitive agreement to acquire 100% of the equity interests of TEAK Midstream, L.L.C. ("TEAK"), a privately owned midstream operator, for $1 billion in cash.  TEAK is a natural gas gathering and processing company with assets located in the core of the Eagle Ford Shale, a liquids-rich, highly prolific oil and gas area of south Texas. The transaction is expected to close in the second quarter of 2013 and is subject to certain regulatory approvals and customary closing conditions.

Highlights

  • The assets being acquired include a 200 MMcfd cryogenic processing plant ("Silver Oak I"), 265 miles of 20"-24" high pressure rich gas gathering lines with 750 MMcfd of throughput capacity, and a second 200 MMcfd cryogenic processing plant ("Silver Oak II"), which is expected to be delivered to the Partnership for installation in May of 2013 and be in service during the first quarter of 2014.
  • Total capital expenditures associated with the build-out of Silver Oak II and other projects are expected to be approximately $100 million over the next year. 
  • Approximately 80% of TEAK's current gross margin is derived from fixed fee contracts, with the majority of those volumes under minimum volume commitments. 
  • Pro forma for the transaction, the overall cash flow mix to the Partnership is expected to be over 50% fixed fee by the end of 2014.
  • The Partnership expects further expansion of the acquired Eagle Ford assets beyond 2014, including the potential to add a third 200 MMcfd processing facility and additional gathering pipelines among other projects.
  • Management will discuss the acquisition on the first quarter earnings call scheduled for April 30, 2013

Eugene Dubay, Chief Executive Officer of the Partnership, commented, "We are very excited about the acquisition of TEAK Midstream.  We have been looking at the Eagle Ford shale for a number of years and are fortunate to have found what we believe is the ideal entry point.  TEAK's assets are the highest quality and best positioned for growth with minimal capital requirements.  The assets are new, highly efficient, and are located in the heart of one of the most prolific plays in North America.  The addition of the TEAK assets will not only diversify the Partnership's cash flows by adding a highly attractive new area of operations, but it has a large amount of embedded organic growth, which could more than triple the size of the complex, as it looks today.  This purchase fits well with our strategy of having scale as a gathering and processing midstream company in highly attractive, liquids-rich areas with significant producer activity and organic growth opportunities.  We would like to welcome all of the employees from TEAK to Atlas Pipeline and also thank all of our stakeholders for their continued support."

Upon the closing of this transaction, the Partnership will own 100% of the following TEAK assets:

  • 200 MMcfd of cryogenic processing capacity;
  • A second 200 MMcfd cryogenic processing facility to be in service in the first quarter of 2014
  • 265 miles of primarily 20" to 24" gathering and residue lines with 750 MMcfd of throughput capacity; and
  • 275 miles of low pressure gathering lines

Additionally, the Partnership will acquire a 50%-75% interest in various joint venture agreements that currently exist between TEAK and TexStar Midstream Services, L.P. ("TexStar").  It is anticipated that the Partnership will be the operator of the joint venture assets following the transaction, which include:

  • 235 miles of pipeline, including rich gas gathering, header, and residue pipelines;
  • 3 miles of NGL pipeline; and
  • A Co-Gen facility, which will produce power for the Silver Oak complex as well as the ability to sell power to third-parties and back to the grid during peak season

As previously mentioned, the Silver Oak processing complex is expected to expand in early 2014 by installing a new 200 MMcfd facility, the Silver Oak II plant, and potentially expand further thereafter by adding an additional 200 MMcfd facility.  Any expansions will be 100% owned and operated by Atlas Pipeline.    

Atlas Pipeline has secured financing for the acquisition through a $400 million Series D Convertible Preferred issuance ("Preferred") as well as through committed bank financing from Citigroup and Wells Fargo.

Citigroup acted as financial advisor on the transaction and was the Sole Placement Agent on the $400mm Preferred.  Jones Day (Houston) and Ledgewood (Philadelphia) acted as legal advisors on the transaction.

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