"If at first you don’t succeed, try, try, try again,” is a saying that’s been used many times, and it’s an apt description of the recently completed merger of Crosstex Energy with Devon Energy Corp.’s midstream assets to create EnLink Midstream. After nearly completing similar deals on two previous occasions in the past 10 years, the companies reached an agreement on the third go-round.

“The third time really was the charm for us. We developed good traction in the first two merger attempts so that by the third attempt we were able to build a deal that made sense for both companies,” Barry Davis, president and CEO of EnLink Midstream and former president and CEO of Crosstex Energy, told Midstream Business.

The merger may have been a lengthy process, but it has been a great fit so far. According to Davis, the earnings estimates presented to both boards of directors should lead to EBITDA doubling to $1.4 billion by the end of 2017, driven by about $1 billion to $2 billion per year in capital investment.

“When we presented our model and our presentation to them on why this transaction made sense, we demonstrated the impacts for both sets of shareholders and limited partners. This included the diversification, the scale, the credit quality, and ultimately, the immediate accretion that would result from the transaction. We presented what we thought would happen to our equity prices, and we were essentially spot-on,” Davis said.

A growing bond

The two companies have had a long-standing relationship during the past decade. This bond grew in 2006 when the two companies completed a $2.63 billion joint agreement to acquire privately held Chief Holdings’ assets in the Barnett Shale with Devon acquiring the E&P assets and Crosstex acquiring the midstream operations.

“We have always had great mutual respect for each other and as a result of working together, we have found that the companies have similar cultures and values from the front lines through the executive teams,” Davis said.

The Chief Holdings’ deal also represented the first time that the two companies discussed the possibility of combining Devon’s midstream assets with Crosstex Energy’s portfolio.

“We always thought the combination of these two sets of assets in the Barnett Shale made sense, especially in a master limited partnership format,” he added.

These talks resumed in 2009, but again fell short of an agreement. The third, and ultimately successful round of merger talks began shortly after Devon filed an S-1 with the Securities and Exchange Commission to form its own MLP in February 2013. Immediately after this announcement, Crosstex again approached Devon about combining its midstream operations with the Crosstex MLP platform rather than go through the process of a public IPO while still holding a majority stake in the general partner (GP).

“The biggest difference between the third round of discussions and previous two was the foundation of trust the companies had built up and the timing of the agreement,” Davis said. “Our company cultures and values aligned, and Crosstex had the right MLP format with a pure MLP and pure GP on top. Today, we are one of the largest midstream companies in the industry with a combined enterprise value of about $14 billion for our MLP and GP combined. We have the capability to deliver tailored solutions for our customers and sustained growth for our stakeholders.”

The deal made a lot of sense from Crosstex’s perspective, as it was consistent with the company’s stated goal of reaching an investment-grade credit rating and opening up future growth opportunities.

“The response in our boardroom was very positive, both to the party and to the nature of the transaction,” he added.

Work and time

A deal between two publicly traded companies can be a lengthy and complex process. It would turn out to be a lot of hard work and take a lot of time to structure the transaction. The third round of negotiations between the two companies lasted 12 months from start to finish. Even among natural fits such as Crosstex and Devon, agreements aren’t as easy to realize, despite the strong belief that a merger would work. However, the earlier discussions did help to make the process smoother.

“As deals typically go, it was fairly slow in the beginning. We first met with them in March 2013 and discussions and negotiations became very focused in the later summer/early fall of 2013. From that point on, it was another eight months to closing,” Davis said. “I don’t think there was any magic about the way the negotiations went. You’re always searching for what is good for both sets of shareholders, and we felt like we struck the right balance which you can see in the market response.”

The formation of EnLink has essentially rewritten Crosstex Energy’s equity with a significantly higher enterprise value and an investment-grade credit rating that will improve its access to capital. In 2009, Crosstex Energy suspended its distributions after experiencing larger-than-anticipated losses as a result of the economic downturn. Davis said this merger follows through on the company’s strategy for avoiding such hard decisions in the future.

“Crosstex—along with the entire industry—faced unprecedented times during the credit crisis. We learned a lot from that experience, which demonstrated the importance of size, scale, diversification and financial flexibility. Since 2008, Crosstex has made significant progress enhancing our financial strength and increasing our scale and diversification to become a strong company. This transaction was certainly the culmination of that strategy. As we look forward, we believe we will see approximately 8% to 10% distribution growth at the MLP and 20% or greater growth in the distribution at the GP,” he said.

Beneficial to all

While the benefits to the company and investors have gotten a vast amount of attention, Davis was quick to point out that many of these benefits also assist customers that have transitioned into EnLink due to the greater breadth of assets, as well as potential new customers.

“Our platform now has exposure to seven of the top shale plays in the country including the Barnett, Permian, Cana Woodford, Arkoma Woodford, Eagle Ford, Haynesville and the Marcellus-Utica with significant assets and capabilities across all of them for our customers. Credit is also an extremely important piece to our customers. Having an investment-grade credit rating coming right out of the closing of the transaction was not only great for our shareholders and us, it also de-risks the services we provide and increases our capabilities. Our customers know we are here to stay,” he said.

From a balance sheet perspective, Devon’s contributions looked like a $4.8 billion equity raise. In addition, EnLinK refinanced much of Crosstex’s legacy long-term debt, which saves about $35 million per year in financing costs.

According to Davis, this agreement has resulted in EnLink having one of the lowest costs of capital in the MLP sector, which will be a huge benefit for future growth opportunities. In the near-term, the company will focus on organic growth based on its strategically located and complementary assets.

These include more than 7,300 miles of gathering and transmission lines, 12 processing plants with 3.3 billion cubic feet per day of capacity and another plant with 60 million cubic feet per day (MMcf/d) of capacity currently under construction, more than 570 miles of liquids transport pipeline, six fractionation facilities with 180,000 barrels per day (bbl/d) of capacity and 3 MMbbl/d of underground NGL storage, 200 miles of crude oil pipeline and 500,000 bbl of aboveground storage.

The company is already looking at expansion in several plays, including the Cana Woodford, Utica and Permian. The Cajun-Sibon Pipeline, in particular, is expected to open up multiple growth opportunities for the company in the Gulf Coast of Louisiana.

“We’re looking for growth across all seven of the plays where we’re located, but those are the four regions we’re especially focusing on,” Davis said.

As the company thinks about growth, EnLink considers not just where it will grow, but how it will grow. EnLink’s structure, assets and financial status will allow it to grow from multiple sources. A cornerstone of that growth will be its built-in asset dropdowns, which are asset transfers from the GP to the MLP, from Devon to the GP or from Devon to the MLP.

Potential drop-down acquisitions include:

  • The Access Pipeline in Edmonton, Alberta, which connects to the West Coast waterborne and U.S. markets along with refining and rail markets in Edmonton;
  • The Victoria Express Pipeline, which runs from the core of the Eagle Ford to Devon’s Port of Victoria, Texas, terminal; and
  • The E2 business in the Marcellus and Utica shales, which is aimed at developing compression and condensate stabilization facilities in the play. These dropdowns have the potential of adding $375 million of additional cash flow by 2017 along with opening up new organic opportunities.


The size of EnLink Midstream’s assets in the Cana and Northridge areas of Oklahoma make the state a target for future company growth. The Cana system consists of a 350 million cubic feet per day processing plant, 30,000 barrels per day of NGL production capacity and 413 miles of associated low-, intermediate- and high-pressure pipeline segments with approximately 92,500 horsepower of compression. Source: EnLink Midstream

Infrastructure development

Not only can Devon help EnLink grow through dropdowns, but the two companies can also grow through Devon’s E&P operations. Davis said that Devon has historically spent about $500 million per year in infrastructure development to support its E&P operations. “We could have the opportunity to build some of that infrastructure in the future,” he added.

The third avenue of growth for EnLink will be organic investment, which was Crosstex Energy’s primary mode of development as it was largely focused on constructing infrastructure for new plays and customers.

EnLink is also well-positioned to be a significant player in the mergers and acquisitions market. According to Davis, “Opportunities need to be sizable to make sense for us, but we are always looking at a lot of different deals at a lot of different sizes. We think that our balance sheet really positions us to be able to do transactions that are quite large.”

For the next few years, it is likely that dropdowns will be the main driver of growth for EnLink because of the number of opportunities available. However, he said that long-term growth avenues will be determined by their timing. Ultimately, EnLink is poised to have a balanced and active growth model across all platforms.

Think big, lead big

While speaking at the company’s recent analyst conference, Davis said that its aim was to “think big and lead big.” When asked to expand upon this goal, he said that the company's large enterprise value allows for the potential for strong growth in the coming years.

“We continue to build upon the legacy of performance and excellence in the way that we do things. You have a very capable organization with great sponsorship, one of the strongest balance sheets in the industry and a very strong inventory of growth opportunities going forward. We are focused on serving all our customers through innovative solutions that meet their needs and create value,” Davis said.

The integration into EnLink has gone very smoothly. Midstream Business had the opportunity to tour the company’s Bridgeport, Texas, processing plant and the staff on site talked about how much continuity there has been at the facility on a day-to-day basis.

The biggest change that this facility underwent in the days after the completion of the merger and our tour in May was the rebranding throughout the site with the new EnLink logo. The commitment to safety and customer service remained the focal points of operations.

Part of this is due to the number of core personnel that made the switchover with the facility, which has carried out throughout the new organization. This level of continuity can be seen throughout the company from Davis to Steve Hoppe, executive vice president and president of the company’s gas gathering, processing and transportation business.

“I’ve been surprised at how quickly our people have been able to integrate and hit the ground running. The transition to EnLink has been really easy because the organization, the business approach and the cultures between the two companies were very similar,” Hoppe told Midstream Business.

Hoppe said that EnLink regularly seeks customer feedback to ensure that customers’ needs are being met and that EnLink’s business is being developed in alignment with their future growth.

He said that on a short-term basis, this division of the company will focus on its gathering and processing operations while also exploring expansions to its transmission systems.


EnLink Midstream’s leadership team includes, from left, Steve Hoppe, executive vice president and president of gas gathering, processing and transportation, formerly of Devon Energy; president and CEO Barry Davis, who held the same post at Crosstex Energy; and Mac Hummel, executive vice president and president of natural gas liquids and crude, formerly with Williams. Source: EnLink Midstream

Fort Worth opportunity

“We see a lot of opportunity in the Fort Worth Basin, so we’re going to look at consolidation of our core asset bases in North Texas and Oklahoma, either through acquisitions or by shutting down idle equipment and offering services to other midstream providers. As we combine these assets, we’re hoping that production outstrips our capacity, and we will have room to grow and build more. We’re well-positioned to leverage off of the pipe that we have in the ground as well as our existing systems to interconnect and optimize those operations,” Hoppe said.

The company is building the 60 MMcf/d Bearkat processing plant and 60-plus miles of affiliated pipeline into new areas in the Permian Basin. In addition, he said the company is considering expansions and a number of greenfield projects in the Permian.

“The Permian has a lot of diversity as far as what’s being developed in the number of zones being tested in the play. We’re also doing analysis that is looking at all of the basins across the U.S. and identifying those that we want to focus on,” Hoppe added. This focus includes sub-areas of large plays.

EnLink also views Oklahoma as a region for growth based on new activity in the Stack play, the South Central Oklahoma Oil Province and the Mississippi Lime as well as the company’s strong position in the Cana and Northridge areas.

While the company has been increasing its focus on liquids in order to achieve its goal of a balanced split between gas and liquids assets, Hoppe said that EnLink will not shy away from expanding its gas footprint. In fact, it is focused on expanding both gas and liquids holdings.

Balanced operations

“Optimally we have a 50:50 split, but it is also a function of what the market directs us toward,” he added.

The market has been making export projects—either in the form of LNG, LPG, ethane or condensate—more attractive for companies to build, and EnLink is no exception. While no project has been announced, Mac Hummel, executive vice president and president of EnLink’s NGL and crude oil business, told Midstream Business that the company has interest in export projects and is considering what its position should be both from an ownership and supply perspective.

As part of the merger agreement, EnLink secured 10-year contracts to serve as the provider of midstream services for Devon. The first five years have minimum volume commitments, providing EnLink with guaranteed cash flow. Terms also provide EnLink with 10 years of area dedications for anything Devon develops in the region of EnLink’s Cana, Northridge and North Texas assets.

“It really provides us a great opportunity to not have to worry about where our revenue is going to come from for the next five to 10 years and creates a strong platform for us to work from,” Hoppe said. EnLink will seek to secure contract lengths that match the risk it is taking depending on the scope of the project and level of service being provided.

The company intends to customize more of its services and applications to meet customers’ needs and provide them with the best service possible.


Once completed by the end of this year, the Cajun-Sibon Pipeline will provide EnLink Midstream the ability to connect heavy demand areas with heavy supply regions. Source: EnLink Midstream

Getting in on the ground floor

While the changes at the Bridgeport plant have largely been of a cosmetic nature, the same cannot be said of the company overall. It is easy to forget that EnLink is a new company and not just a rebranded Crosstex Energy with some Devon midstream assets included.

Davis noted that Devon has more than 40 years of operation and Crosstex has nearly 20 years of operation—which brings a lot of stability, performance and excellence to the table—but EnLink is different from those two companies.

“This is a new company, and what we’re trying to do is make sure that the marketplace really appreciates how different we are. We needed our folks internally and the marketplace to really appreciate the significance of the transaction, and we think they get it,” Davis said.

It is this ability to get in on the ground floor of something new with tremendous potential that attracted Hummel to leave Williams after 29 years.

“I’m intrigued by the culture here. I have an opportunity now to lead in a different way than I would have been able to at Williams on both the gas and liquids sides of the business. I see the opportunity for the company and its employees to grow,” Hummel said.

Hummel added that he believes his experience working at a company like Williams with its large size and scale can help EnLink achieve its growth targets. “It’s a good match of capability and needs as I look at the future for EnLink,” he said.

Growing EBITDA

Part of this fit includes the desire to grow EnLink’s liquids segment, which is still a smaller portion of the company’s EBITDA. Going forward, Hummel said that liquids will become a critical part of EnLink. “We have a great platform for growth. Our Cajun-Sibon Pipeline expansion is scheduled to be completed in the fourth quarter of this year. At that point, we will have a Y-grade [mixed NGL] pipeline stretching from the Mont Belvieu area to the Mississippi River. This will provide us tremendous reach across a heavily supplied area and a heavy demand area,” he said.

Not only will this help link up supplies and markets, it also enhances the potential for EnLink to receive additional volume from truck and rail and from different supply basins. This system also has the potential to link to new NGL storage facilities, treating and export terminals that the company could build.

“There is an extremely broad set of opportunities that it opens for us. Not that we didn’t have those opportunities before, but they’re more tangible now,” Hummel said.

Another aspect of growth within the liquids segment is crude, as EnLink’s primary crude presence is in its Ohio River Valley operations in the Utica and Marcellus. The Ohio River Valley operations include 200 miles of crude and condensate pipelines in Ohio and West Virginia and the largest truck fleet in the region.

This unit is comprised of assets acquired in 2012, when Crosstex purchased Clearfield Energy. It includes more than 2,500 miles of unused rights of way and has been targeted for high growth due to its proximity to what many believe is the sweet spot of the Utica and West Marcellus plays. Growth plans include condensate pipelines, additional gas compression and stabilization, as well as processing and refining of condensate and its water disposal business in the region.

Multimodal

EnLink is committed to providing transportation options to its customers. Besides having pipeline connectivity, it also has the capability to receive product from trucks, receive and load product onto rail cars and load barges. The company is interested in providing more access to these modes of transportation, but Hummel said the company is not actively pursuing ownership of rail or barge operations.

“We don’t view it as something we needto own in order to be successful in our segment of the business. If, at some point, we find that to be a limiting factor for us being able to achieve our goals, then we would consider it at that time,” he said. “The majority of growth on the liquids side of the business will come through organic opportunities and will require a marked increase in the company’s historical run rate of capital invested.”

These growth strategies aren’t that different than what Crosstex Energy had planned last year, but the increased scope and capital involved in the formation of EnLink Midstream Partners has accelerated these plans.

Crosstex moved into the top 10 in Midstream Business’ annual rankings of the largest NGL producers and was up to No. 7 in the largest gas processors category. Combined with Devon Energy’s figures, it is likely that EnLink will be a perennial top five company in both rankings going forward.

While the midstream is an industry characterized by quick pivots always looking ahead, EnLink Midstream is proof that looking to the past at a near deal is also a great chance to grow.

Frank Nieto can be reached at fnieto@hartenergy.com or 703-891-4807.

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