Atlas Buys Cardinal
Purchase of midstream operator with three cryogenic processing plants and associated gathering lines and treating facilities.
Atlas Pipeline Partners LP (NYSE: APL) plans to buy all assets of Cardinal Midstream LLC for $600 million in cash.
Dallas-based Cardinal owns or operates three cryogenic processing plants with 220 million cubic feet (MMcf) per day in processing capacity, 66 miles of associated gathering pipelines, and a gas treating business that includes 17 treating facilities located in numerous hydrocarbon basins. More than 80% of Cardinal's current gross margin is derived from fixed fee contracts.
Cardinal has gas treating and processing assets in the Arkoma Woodford shale. Its gas treating subsidiary owns a diverse fleet of amine treating and propane refrigeration plants with operations in the Haynesville, Eagle Ford, Avalon and Woodford shale plays in Texas, Louisiana, Oklahoma and the Granite Wash in northern Texas and western Oklahoma.
As a result of the transaction, Atlas is increasing EBITDA (earnings before interest, taxes, depreciation and amortization) guidance for 2013 by over 20% from $250-300 million to $310-360 million. Atlas expects the transaction to immediately boost earnings to distributable cash flow per unit by 3% to 5% in 2013 and 8% to 10% in 2014.
Atlas forecast that the expected EBITDA from the Cardinal assets to be approximately $60 million in 2013, and approximately $70 million and $80 million in 2014 and 2015, respectively.
Eugene Dubay, Atlas chief executive, said, “The profile of assets fits very well with our core focus, which is gathering and processing in liquids-rich basins with increasing producer activity. The Cardinal assets are close to our assets in the Woodford shale, about 50 miles from our Velma area of operations. The Arkoma portion of the Woodford, which is a new area for us, is a high-NGL, wet gas play that has seen strong activity which has enabled the current Cardinal facilities to be fully utilized, producing growing cash flow that is primarily fixed fee.”
Dubay said that Atlas plans to expand next year through the development of the Stonewall plant, which will have an initial capacity of 120 MMcf per day but is expected to be scalable to 200 MMcf per day with development in the area. The expansion is part of the Centrahoma JV in which Cardinal is in partnership with MarkWest.
As a result of the transaction, Atlas will acquire 100% interest in the Tupelo plant, a 120 MMcf per day cryogenic processing facility in the Arkoma Woodford basin and about 60 miles of gathering lines that gather both rich and lean gas.
In addition, Atlas will acquire 28,500 horsepower compression capability, including a 42 MMcfd compression facility and a treating facility. Cardinal’s gas treating business also includes contract gas treating operations in multiple shale plays including the Woodford, Eagle Ford, Granite Wash, Avalon, Haynesville, and Fayetteville shales. This includes 15 amine treating facilities as well as two propane refrigeration facilities.
The business generates fixed fee cash flow through the treatment of wellhead volumes to reduce impurities and is 100% fixed fee cash flow.
Additionally, Atlas will acquire a 60% interest in the Centrahoma joint venture ("Centrahoma") that currently exists between Cardinal and MarkWest Energy Partners, L.P. (NYSE: MWE). Atlas will be the operator of the Centrahoma JV assets following the transaction. The Centrahoma JV currently owns two cryogenic facilities: the Coalgate plant and the Atoka plant, with current processing capacity of 80 MMcfd and 20 MMcfd respectively. The JV also controls 15 miles of NGL pipelines.
All three processing facilities are currently fully utilized. As previously agreed to by Cardinal and MarkWest, the Centrahoma JV is expected to expand in late 2013 by installing a new 120 MMcf per day plant ("Stonewall plant") which will be scalable to 200 MMcfd with development in the area. Incremental cost for the Stonewall plant expansion to process the full 200 MMcf per day is currently expected to be less than $50 million net to Atlas.
Deutsche Bank Securities acted as financial advisor on the transaction. Jones Day and Ledgewood acted as legal advisors on the transaction.
Houston-based Atlas owns and operates treating and processing segments of the midstream natural gas industry. Its assets are in Oklahoma, southern Kansas, northern and western Texas, and Tennessee. In addition, Atlas owns and operates nine active gas processing plants as well as approximately 9,700 miles of active intrastate gas gathering pipeline. It also has a 20% interest in West Texas LPG Pipeline Limited Partnership, which is operated by Chevron Corp.
Cardinal Midstream is a privately held company founded in 2008 by Mack Lawrence, Jim Bryant, Doug Dormer and Marc Lyons. Cardinal is backed by private equity commitments from EnCap Flatrock Midstream LP and EnCap Investments LP.
The acquisition is expected to close before the end of 2012.