The $1.8 billion sale of an Energy Transfer Partners LP unit signaled a further compression of the compression sector. USA Compression Partners LP (USAC) made the acquisition of CDM Resource Management, a deal that nearly doubled the company’s fleet and established a sizable presence in major basins like the Eagle Ford and Rockies.
CDM also is among the select few major players in the high-horsepower market.
Simmons & Co. International’s senior analyst, John Watson, did the math and liked what he saw. The new entity will boast about 3.4 million horsepower (hp), compared with industry leader Archrock Inc.’s 3.9 million hp.
“We view the acquisition positively for the larger compression industry as it becomes less fragmented and resembles more of an oligopoly, likely generating additional pricing power,” he wrote.
Watson added that he expected compression pricing to pick up at a “more fervent pace” this year, in part due to the consolidation aspect of the deal.
Baird analysts ranked the deal “accretive” for Energy Transfer and noted that “the scale and liquidity enhancement of the transaction will allow USAC to reduce leverage and improve its coverage in the interim.”
Mizuho Energy analysts liked the deal, too, though they didn’t love it, calling it a “modest positive” for Energy Transfer. What they liked was that the bulk of the proceeds from USA Compression was cash. What amounted to a buzzkill—maybe just a buzzwound—to Mizuho is that about $450 million of the purchase price comes in the form of USAC units.
What Mizuho viewed as a favorable compression divestment by Energy Transfer was seen as offset by the added complexity of owning a stake in USA Compression. But for the sector, the analysts indicated, it was worthy of a fist bump.
“The transaction marks the first, not the last, step in fully monetizing the compression business,” they wrote.
Joseph Markman can be reached at jmarkman@hartenergy.com or 713-260-5208.
Recommended Reading
New Fortress Starts Barcarena LNG Terminal Operations in Brazil
2024-03-01 - New Fortress’ facility consists of an offshore terminal and an FSRU that will supply LNG to several customers.
CoolCo, GAIL Enter Long-term LNG Agreement
2024-05-16 - CoolCo and GAIL’s agreement is intended to secure long-term LNG supply in India’s market, with GAIL having an option to extend the 14-year agreement by another two years.
Midstream Builds in a Bearish Market
2024-03-11 - Midstream companies are sticking to long term plans for an expanded customer base, despite low gas prices, high storage levels and an uncertain political LNG future.
Permian Gas Finds Another Way to Asia
2024-04-30 - A crop of Mexican LNG facilities in development will connect U.S. producers to high-demand markets while avoiding the Panama Canal.
NextDecade Targets Second Half of 2024 for Phase 2 FID at Rio Grande LNG
2024-03-13 - NextDecade updated its progress on Phase 1 of the Rio Grande LNG facility and said it is targeting a final investment decision on two additional trains in the second half of 2024.