Permian Could See More Deals Like Brazos

The $1.75 billion sale of Brazos Midstream’s Delaware Basin subsidiaries to Morgan Stanley Infrastructure is another big step for the sector as it hustles to keep up with producers’ soaring output in the Permian. And deals like this are likely to keep coming.

“With the shortage of natural gas pipeline capacity out of and around the Permian, it looks like Brazos was in a good position to command good money for its assets in the Delaware Basin,” said Greg Haas, director of integrated oil and gas for Stratas Advisors. “The long-founded theory, ‘buy low, sell high’ seems to apply today in this case.”

The Permian is showing itself to be rich in both hydrocarbons and transactions.

“We see a number of other midstream funds who have some dry powder yet,” Haas said. “And some midstream firms may have rapid growth prospects that require bigger partners and deeper pockets to more fully realize. It seems plausible that oil or gas midstream assets in the Permian could make for an attractive purchase given the anticipated wave of production growth there. So we wouldn’t be surprised if other smaller gassy Permian infrastructure players may have their dance cards filled with potential partners.”

The Brazos Midstream Holdings LLC transaction, announced April 9, involves assets in Reeves, Ward and Pecos counties, Texas, including:

• 350 miles of natural gas and crude oil gathering pipelines;
• The Comanche natural gas processing complex (Comanche I and Comanche II plants) with 260 million cubic feet (MMcf/d) of capacity and Comanche III, with 200 MMcf/d expected to come online late this year; and
• About 50,000 barrels of crude oil storage.

In three years, Fort Worth, Texas-based Brazos developed into one of the largest midstream oil and gas companies in the Delaware Basin. Its customers have long-term dedications on more than 300,000 acres.

The sale comes on the heels of the recent announcement by Targa Resources Corp. (NYSE: TRGP) that it would be expanding its natural gas gathering and processing operations in the Delaware. Targa, with about $10 billion in market capitalization, will build about 220 miles of 12-to-24-inch high-pressure rich gas gathering pipelines to go with its new 250 MMcf/d cryogenic processing Falcon Plant that is expected to go online in fourth-quarter 2019.

Targa’s other Delaware Basin 250 MMcf/d plant, Peregrine, is expected to start up in second-quarter 2020. These projects represent $500 million in capex, with $200 million on track to be spent this year.

Brazos Midstream and Old Ironsides Energy LLC began their partnership in April 2015. The company was formed by four industry veterans and led by CEO Brad Iles, who had been senior vice president of EnLink Midstream Partners and was named a Hart Energy Forty Under 40 honoree last year.

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.