Power Utility DTE Energy Agrees To $2.7 Billion Haynesville Midstream Deal

An affiliate of DTE Energy Co. said Oct. 18 it is buying a Haynesville Shale pipeline in a multibillion-dollar transaction as the U.S. power utility expands its natural gas pipelines and storage business.

The Detroit-headquartered company’s non-utility business, DTE Midstream, entered into an agreement to acquire the assets from Momentum Midstream LLC and Indigo Natural Resources LLC for about $2.7 billion in cash that includes a multimillion-dollar contingency payment due in late 2020.

As a result, DTE Midstream will acquire 100% of M5 Louisiana Gathering LLC. Momentum Midstream and Indigo Natural Resources each hold a 50% stake in M5 Midstream.

In a statement, Jerry Norcia, president and CEO of DTE Energy, said the acquisition of M5 Midstream “checks all of our boxes.”

M5 Midstream operates an existing gathering system serving natural gas producing in the Haynesville Shale, of which Indigo Natural Resources, one of the largest private natural gas producers in the U.S., is the main supplier, according to the company release.

The deal also includes a 150-mile gathering pipeline under construction, in which the contingency payment is tied to the completion of expected in second-half 2020. Both of the systems are supported by long-term contracts as well.

The acquired assets are fully contracted with a remaining tenor of 13.5 years for the existing gathering system and a 10-year contract for the large diameter gathering pipeline that is currently under construction, the company release said.

DTE Energy said it expects the acquisition will enhance its midstream business as the assets’ location in the “highly-economic” Haynesville Shale basin. The assets also provide access to multiple major downstream pipelines, including those serving the Gulf Coast markets, where the company expects demand for natural gas to rapidly increase in the power, industrial and LNG export sectors.

“This acquisition is highly accretive, has world-class resources, has excellent access to large markets, and is in the early- to mid-cycle development phase,” Norcia said.

The transaction, at a project level, is immediately $0.15 accretive to operating earnings per share in 2020, growing to $0.45 per share over five years with a strong cash flow profile, the company release said.

DTE Energy also added that the acquisition on Oct. 18 is in-line with its plan to invest between $4 billion and $5 billion in the DTE Midstream business from 2019-2023. The strategy, though, is to maintain a long-term business mix of 70% to 75% utility.

DTE Energy’s pipeline and storage roots date back more than 30 years ago in the Michigan producing basins, then the Texas Barnett Shale. More recently, the company expanded into the Appalachian Basin through an acquisition, also from Momentum Midstream.

In 2016, DTE Energy acquired Momentum’s Appalachia assets, now known as the Link Lateral and Gathering system, for $1.3 billion. Momentum Midstream is backed by Yorktown Energy Partners LLC, which has been the company’s primary equity sponsor since 2004. Additional financial partners of Momemtum’s include Ridgemont Equity Partners, Magnetar Capital LLC, GSO Capital Partners and Trilantic Capital Partners.

“The successful operation of the Link asset, also purchased from Momentum, demonstrates the operating expertise and value creation DTE Midstream brings to this new system,” Norcia noted in his statement.

In total, DTE Midstream will pay about $2.3 billion at closing for the M5 assets plus a $400 million milestone payment upon completion of a gathering pipeline expected in second-half 2020.

The company said it expects the transaction to close fourth-quarter 2019.

Barclays is financial adviser to DTE Energy for the transaction. Shearman & Sterling LLP is serving as the company’s legal counsel, with Dechert LLP assisting with its Hart Scott Rodino filing. Jefferies and Credit Suisse are Momentum’s financial advisers for the transaction. Vinson & Elkins is Momentum’s legal counsel and Kirkland & Ellis is serving as legal counsel to Indigo.