Photo courtesy of Coronado Midstream Holdings LLC.
EnLink has signed a definitive agreement to acquire Coronado Midstream Holdings LLC, a company held by E&Ps that owns natural gas facilities in the Permian Basin for $600 million.
Coronado is owned by its key producer customers, Reliance Energy Inc., Diamondback Energy Inc. (NASDAQ: FANG), and RSP Permian Inc. (NYSE: RSPP). Reliance is the largest owner of Coronado, while affiliates of Diamondback and RSP own the remainder.
Coronado’s owners will receive $240 million in cash, $180 million of partnership common units and $180 million of a new class of partnership common units, subject to certain adjustments.
The Enlink companies—EnLink Midstream Partners LP (NYSE: ENLK) (the partnership) and EnLink Midstream LLC (NYSE: ENLC) (the general partner)—will acquire three cryogenic gas processing plants and a gas gathering system in the North Midland Basin. The assets include 270 miles of gathering pipelines, 175 million cubic feet per day (MMcf/d) of processing capacity and 35,000 horsepower of compression.
Construction of an additional 100 MMcf/d of processing capacity and gathering system expansions of the Coronado system are underway.
Coronado's key assets have been constructed within the past five years and the system has current inlet volumes of 100 MMcf/d. EnLink plans to connect the Coronado system with its Bearkat system to create a multi-county rich gas gathering and processing system to create optimization opportunities for its customers and its product marketing services.
The Coronado system is underpinned by long-term contracts, which include the dedication of production from over 190,000 acres.
“This transaction builds on EnLink’s growing midstream platform in West Texas,” said Barry E. Davis, EnLink president and CEO. “The Coronado assets are located in the core of the North Midland Basin and are supported by the region’s most focused and active producers. By combining Coronado with our recent LPC acquisition and our existing footprint, we have the opportunity to create tremendous value for our producer customers by linking our gas gathering, processing and crude oil logistics operations to provide a full-service midstream solution.”
Economics in the North Midland Basin are among the most favorable of all oil-producing regions in the U.S. The region has seen a rapid transition to horizontal drilling, with producers targeting the Lower Spraberry, Wolfcamp B and Wolfcamp D zones among other prospective intervals. Recent well results from Coronado’s producer customers, as well as other producers, indicate outstanding resource potential in the area.
Coronado Midstream, formerly MidMar Gas LLC, was formed in 2008 and is a privately held midstream energy company headquartered in Midland, Texas. Patriot Resources (now RSP Permian), Windsor Energy (now Diamondback Energy) and Reliance Energy established a cooperative midstream company to build gathering systems and processing plants to better “control destiny.”
“We have assembled a strong acreage position in the North Midland Basin that will continue to serve as a key driver of production growth for many years,” said Travis D. Stice, CEO of Diamondback and Viper Energy Partners.
Stice said the company has been involved with Coronado since its formation and grown together as business partners.
“We look forward to working together with its new owners to support each other’s growth aspirations,” he said.
Reliance has focused on expanding and de-risking its acreage around the Coronado system since 2007, said Gary D. McKinney, Reliance president. “We believe we are located in some of the best areas of the Midland Basin and we’re excited about our recent horizontal well results in the region.”
EnLink expects increased activity around Coronado’s system in the next few years to generate significant accretion in distributable cash flow per unit.
EnLink anticipates its total investment will be about seven to eight times Coronado’s adjusted EBITDA with the timing dependent on the recovery of commodity prices and an increase in producer activity, taking into consideration expected additional capital investments of up to $600 million.
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