Energy Transfer acquires CEQP in a $7.1 billion merger that will give it access to new basins and markets, increase the volumes of its downstream assets, and create synergies and efficiencies.
Energy Transfer (ET), one of the largest and most diversified energy companies in the US, announced on August 16, 2023 that it has entered into a definitive merger agreement with Crestwood Equity (CEQP), a midstream master limited partnership (MLP) that operates in several key basins across the US.
The deal, which is valued at $7.1 billion, will give ET access to new sources of natural gas liquids (NGLs) and crude oil, as well as increase the volumes of its downstream assets, such as pipelines, fractionators, and export terminals. In this blog post, we will explore the implications of this deal for both companies and their investors, and how it may affect the US energy market.
What are the terms of the deal?
According to the merger agreement, ET will acquire all of the outstanding common units of CEQP in an all-stock transaction. CEQP unitholders will receive 2.05 ET common units for each CEQP common unit they own. This represents a 27% premium to CEQP’s closing price on August 13, 2023. The transaction is expected to close in the first quarter of 2024, subject to customary closing conditions and regulatory approvals.
The deal will also result in the simplification of ET’s corporate structure, as it will eliminate its incentive distribution rights (IDRs) and economic general partner interest in CEQP. IDRs are payments that MLPs make to their general partners based on the amount of cash distributions they pay to their unitholders. By eliminating IDRs, ET will reduce its cost of capital and increase its distributable cash flow (DCF), which is the amount of cash available to pay dividends or distributions to its shareholders or unitholders.
What are the benefits of the deal for ET?
The deal will provide several benefits for ET, such as:
- Access to new basins and markets: CEQP has a diversified portfolio of midstream assets that span across several key basins in the US, such as the Bakken Shale, the Powder River Basin, the Delaware Basin, the Marcellus Shale, and the Barnett Shale. These assets include gathering and processing facilities, storage terminals, transportation pipelines, and marketing services for NGLs and crude oil. By acquiring CEQP, ET will gain access to these new sources of supply and demand for its products and services, as well as expand its geographic footprint and customer base.
- Increased volumes for downstream assets: ET has a large network of downstream assets that include NGL and crude oil pipelines, fractionators, storage facilities, and export terminals. These assets enable ET to transport, process, store, and export NGLs and crude oil to various domestic and international markets. By acquiring CEQP, ET will increase the volumes of these assets by connecting them to CEQP’s upstream assets. For example, ET will be able to transport more NGLs from CEQP’s Bakken assets to its Mont Belvieu fractionation complex in Texas, or more crude oil from CEQP’s Delaware Basin assets to its Nederland terminal in Louisiana.
- Enhanced operational efficiency and synergies: ET expects to achieve annual run-rate synergies of approximately $150 million by 2025 as a result of the deal. These synergies will come from operational efficiencies, cost savings, revenue enhancements, and capital expenditure reductions. For example, ET will be able to optimize its asset utilization, reduce its operating expenses, increase its pricing power, and rationalize its capital spending.
What are the benefits of the deal for CEQP?
The deal will also provide several benefits for CEQP, such as:
- Premium valuation and increased liquidity: CEQP unitholders will receive a 27% premium to their closing price on August 13, 2023, which reflects the value of their assets and operations. They will also receive ET common units that have a higher trading volume and market capitalization than CEQP common units, which will increase their liquidity and access to capital markets.
- Participation in ET’s growth and dividends: CEQP unitholders will become part of ET’s diversified and integrated energy platform that has strong growth prospects and cash flow generation. They will also benefit from ET’s stable and growing dividend policy that currently pays an annualized dividend of $0.61 per common unit, which represents a yield of 7.8% based on ET’s closing price on August 13, 2023.
- Elimination of IDRs and simplification of structure: CEQP unitholders will no longer have to pay IDRs to ET, which will increase their share of DCF and distributions. They will also enjoy a simpler and more transparent corporate structure that will reduce complexity and conflicts of interest.
How will the deal affect the US energy market?
The deal will have a positive impact on the US energy market, as it will:
- Increase the supply and demand of NGLs and crude oil: The deal will increase the production, transportation, processing, storage, and export of NGLs and crude oil in the US, which will enhance the energy security and independence of the country. NGLs and crude oil are valuable commodities that have various uses in the industrial, residential, and commercial sectors, such as petrochemicals, plastics, fuels, heating, and electricity. The deal will also create more opportunities for domestic and international customers to access these products at competitive prices.
- Support the energy transition and environmental goals: The deal will support the energy transition and environmental goals of the US, as it will promote the use of natural gas and NGLs as cleaner alternatives to coal and oil. Natural gas and NGLs have lower carbon intensity and emissions than coal and oil, which can help reduce greenhouse gas emissions and mitigate climate change. The deal will also enable ET to invest more in renewable energy sources, such as solar, wind, and biofuels, as well as carbon capture and storage technologies, which can further reduce its environmental footprint.
Conclusion
The $7.1 billion merger agreement between ET and CEQP is a strategic and transformative deal that will create value for both companies and their investors. The deal will give ET access to new basins and markets, increase the volumes of its downstream assets, enhance its operational efficiency and synergies, and support its growth and dividend policy.
The deal will also provide CEQP with a premium valuation and increased liquidity, participation in ET’s growth and dividends, elimination of IDRs, and simplification of structure. The deal will also have a positive impact on the US energy market, as it will increase the supply and demand of NGLs and crude oil, support the energy transition and environmental goals, and create more jobs and economic activity.
Q: What is the main topic of the article?
A: The main topic of the article is the merger agreement between Energy Transfer (ET) and Crestwood Equity (CEQP), two major energy companies in the US, and how it may boost ET’s downstream volumes and value.
Q: What are the terms of the deal?
A: The terms of the deal are that ET will acquire all of the outstanding common units of CEQP in an all-stock transaction, valued at $7.1 billion. CEQP unitholders will receive 2.05 ET common units for each CEQP common unit they own. The deal will also result in the elimination of ET’s incentive distribution rights (IDRs) and economic general partner interest in CEQP.
Q: What are the benefits of the deal for ET?
A: The benefits of the deal for ET are that it will gain access to new basins and markets, increase the volumes of its downstream assets, enhance its operational efficiency and synergies, and support its growth and dividend policy.
Q: What are the benefits of the deal for CEQP?
A: The benefits of the deal for CEQP are that it will receive a premium valuation and increased liquidity, participate in ET’s growth and dividends, eliminate IDRs, and simplify its structure.
Q: How will the deal affect the US energy market?
A: The deal will have a positive impact on the US energy market, as it will increase the supply and demand of natural gas liquids (NGLs) and crude oil, support the energy transition and environmental goals, and create more jobs and economic activity.
Q: When is the deal expected to close?
A: The deal is expected to close in the first quarter of 2024, subject to customary closing conditions and regulatory approvals.
Q: How will the deal affect the shareholders or unitholders of both companies?
A: The deal will create value for both shareholders or unitholders of both companies, as they will benefit from a diversified and integrated energy platform that has strong growth prospects and cash flow generation. They will also enjoy a stable and growing dividend or distribution policy that currently pays an annualized dividend of $0.61 per common unit for ET and $2.40 per common unit for CEQP.
Q: What are NGLs and why are they important?
A: NGLs are natural gas liquids, which are hydrocarbons that are extracted from natural gas during processing. They include ethane, propane, butane, isobutane, and natural gasoline. They are important because they have various uses in the industrial, residential, and commercial sectors, such as petrochemicals, plastics, fuels, heating, and electricity. They also have lower carbon intensity and emissions than coal and oil, which can help reduce greenhouse gas emissions and mitigate climate change.
Q: What are downstream assets and why are they important?
A: Downstream assets are assets that are involved in the transportation, processing, storage, and export of NGLs and crude oil to various domestic and international markets. They include pipelines, fractionators, storage facilities, and export terminals. They are important because they enable energy companies to optimize their asset utilization, reduce their operating expenses, increase their pricing power, and access new sources of supply and demand.
Q: What are IDRs and why are they important?
A: IDRs are incentive distribution rights, which are payments that MLPs make to their general partners based on the amount of cash distributions they pay to their unitholders. They are important because they affect the cost of capital and the distributable cash flow (DCF) of MLPs. By eliminating IDRs, MLPs can reduce their cost of capital and increase their DCF, which is the amount of cash available to pay dividends or distributions to their shareholders or unitholders.
Q: What is an MLP and why is it important?
A: An MLP is a master limited partnership, which is a type of business structure that combines the tax benefits of a partnership with the liquidity of a public company. It is important because it allows energy companies to avoid paying corporate income taxes and pass their income to their shareholders or unitholders, who only pay taxes on their individual level.
Q: What is a merger agreement and why is it important?
A: A merger agreement is a contract that outlines the terms and conditions of a merger between two or more companies. It is important because it defines the rights and obligations of each party involved in the deal, such as the valuation, exchange ratio, closing date, regulatory approvals, etc.
Q: What is a premium valuation and why is it important?
A: A premium valuation is a price that is higher than the market value or fair value of a company or an asset. It is important because it reflects the value of the company or asset’s future growth potential, competitive advantage, synergies, etc.
Q: What is synergy and why is it important?
A: A synergy is a benefit that results from the combination of two or more companies or assets that enhance their performance, efficiency, or value. It is important because it can increase the profitability, cash flow, and market share of the combined entity.
Q: What is the energy transition and why is it important?
A: The energy transition is the process of shifting from fossil fuels to renewable energy sources, such as solar, wind, and biofuels, as well as carbon capture and storage technologies. It is important because it can help reduce greenhouse gas emissions and mitigate climate change, as well as create new opportunities for innovation and economic growth.