American Midstream Partners LP (NYSE: AMID) said it has acquired Costar Midstream LLC from Energy Spectrum Partners VI LP and Costar management for about $470 million.
Steve Bergstrom, executive chairman, president and CEO, said in an Oct. 14 news release that the addition of Costar is transformative for the company and compliments American Midstream’s presence in East Texas, the Permian Basin and the Bakken.
“The Costar deal is consistent with our growth strategy to pursue third-party acquisitions that enhance our current footprint of natural gas and crude oil midstream assets,” he said. “The senior leadership team at Costar will join our team, and we look forward to working with them to drive further growth of the acquired assets and to find additional development and acquisition opportunities to build scale at American Midstream.”
With the acquisition and the company’s natural gas and crude oil assets in the Eagle Ford, “American Midstream is now operating in a majority of the key energy resource plays in the U.S.,” Bergstrom said.
Costar is an onshore gathering and processing company with its primary gathering, processing, fractionation and off-spec condensate treating and stabilization assets in East Texas and the Permian Basin. A crude oil gathering system project is underway in the Bakken oil play.
The acquisition was funded with 6.9 million American Midstream common units issued directly to Energy Spectrum and Costar senior management. American Midstream is also paying $272 million cash from borrowings under its revolving credit facility and proceeds from an August 2014 private placement of common units.
Total acquisition consideration for Costar equates to an adjusted EBITDA multiple of about 10.5x for the full-year 2015. In addition, American Midstream expects to invest $70 million to $80 million over the next 12-18 months to complete the Bakken, Longview rail, and Permian off-spec condensate blending development projects described below. Upon completion of the development projects, the adjusted EBITDA total investment multiple is expected to improve to about 8x when the development projects reach an annualized cash flow run-rate in 2016.
Costar Assets and Development Projects
Costar’s operating assets include the Longview gas gathering, processing, and fractionation complex and the Chapel Hill gas gathering, processing, and fractionation system, both located in East Texas. In addition, Costar operates the Yellow Rose gas gathering and processing system located in the Permian basin. Costar is also in the process of constructing an oil gathering system in the Bakken as well as a rail terminal in East Texas, and an off-spec condensate blending facility in the Permian. Asset details include:
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