Crestwood acquires Williams' 50% interest in Powder River Basin JV

4/10/2019

HOUSTON -- Crestwood Equity Partners LP (Crestwood) has announced, in a separate joint press release with The Williams Companies, Inc. (Williams), that Crestwood Niobrara LLC (Crestwood Niobrara) acquired a 50% interest in Jackalope Gas Gathering Services, L.L.C. (Jackalope) from Williams for approximately $485 million. The acquisition of Williams’ interest is a continuation of Crestwood’s strategy to expand its operational footprint in its core growth basins. Consolidating the Jackalope assets positions Crestwood for long-term growth in the prolific Powder River Basin by supporting Chesapeake Energy’s (NYSE: CHK) and other producer customers’ long-term development plans. Crestwood funded the acquisition through a combination of borrowing under its revolving credit facility and the issuance of an additional $235 million of preferred equity to Crestwood Niobrara’s existing preferred equity investors, led by Global Infrastructure Partners. Crestwood expects the transaction to be leverage neutral to the Crestwood balance sheet and immediately accretive to distributable cash flow per unit in 2019, with growing accretion thereafter based upon Chesapeake’s current development activity. The transaction, which was not subject to regulatory approval, is closed with an effective date of April 9, 2019.

Transaction highlights

  • Positions Crestwood to be leading G&P company in Powder River Basin : Crestwood immediately doubles its position in one of its core, high-growth assets, becoming one of the largest gas processing companies in the basin, with opportunity to expand commercial services to undedicated third-party operators
  • Strong cash flow growth at attractive valuation : Crestwood expects the Jackalope assets to contribute annual cash flow of $100 million in 2019 and growing to approximately $150 million by 2021
  • Achieves strategic financial goals : The acquisition coupled with the committed financing plan improves Crestwood’s DCF per unit growth profile to greater than 20% through 2020 while maintaining financial flexibility and balance sheet strength with an expected leverage ratio of 3.5x to 4.0x by first half of 2020
  • Committed financing at an attractive cost of capital : Issuance of additional preferred equity to existing Crestwood Niobrara investors to fund ~50% of purchase price allows Crestwood flexibility to continue executing its strategic plan without accessing public equity to fund growth capital in 2019 and 2020; $200 million accordion available from Crestwood Niobrara preferred investors for future growth projects in the Powder River Basin
  • Secures operatorship to drive cost reductions and commercial synergies : By aligning field operations, project management and commercial efforts under one common operator, Crestwood expects to significantly enhance the competitive position of its Powder River franchise. Additionally, Crestwood will retain all of the high-quality employees currently operating the assets and expects to reduce Crestwood Niobrara expenses by approximately $6 million to $8 million annually through assuming the role of operator.

Management commentary
“Today’s announcement marks a key step in Crestwood’s long-term growth objectives to accretively build meaningful scale in a core franchise position, which offers substantial producer development growth potential while positioning Crestwood to be one of the largest G&P service providers in the highly prolific Powder River Basin,” said Robert G. Phillips, chairman, president and CEO. “We would like to thank Williams for what has been a very strong partnership over the last several years and welcome all of the highly-talented employees that will join Crestwood as part of the transaction. Consistent with all of our assets that we operate around the country, we will reaffirm our commitment to safe and reliable operations while providing best-in-class customer service for the producers that we service in the basin.”

Mr. Phillips continued, “In the midstream business it is rare to find a high-quality acquisition within an existing asset footprint that offers immediate accretive returns, enhances our leverage profile and financial strength, and strengthens our midstream value chain service offerings to our customers, all at an attractive valuation. By already owning 50% of the Jackalope system, our teams have an in-depth understanding of the economics of the Powder River Basin, the development plans and corresponding capital requirements for our existing and prospective customers, and the long-term prospects for future growth on and around our Jackalope system, all of which uniquely positioned Crestwood to capitalize on this opportunity. Furthermore, today’s transaction is consistent with our ongoing strategy to expand our core growth assets through prudent investments in accretive, high return capital projects that meet our strict investment hurdles. Our goal is always aimed to generate long-term value for our investors and we are confident this transaction, through bolstering Crestwood’s position of generating peer group leading DCF per unit growth while building balance sheet strength, will do just that.”

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