The Daley Note: August 22, 2023
Energy Transfer (ET) plans to acquire Crestwood Equity (CEQP) for $7.1B in stock. The deal gives ET reach in new basins and could lift volumes on several of the company’s downstream assets.
Energy Transfer will exchange 2.07 units for each Crestwood unit and assume CEQP’s debt, according to terms of the all-stock deal announced August 16. The companies expect to close the transaction in 4Q23.
East Daley Analytics covered the ET-CEQP deal in a “First Take” to clients after the announcement. We noted the acquisition will extend ET’s G&P services into the Williston and Powder River basins. CEQP’s oil gathering footprint in the Bakken could support volumes on ET’s Dakota Access Pipeline (DAPL), while CEQP’s G&P systems could boost ET’s downstream NGL assets.
The deal is ET’s third acquisition since the company bought Enable Midstream (ENBL) for $7.2B in stock in December 2021. In each all-stock deal, ET has targeted gathering assets that could be leveraged to support its longer-haul pipeline assets (and in the case of ENBL, also position ET to take advantage of LNG demand).
ET noted it expects ~$40MM in cost synergies from the deal, as well as financial and commercial synergies. Comparing data in EDA’s Energy Transfer and Crestwood Financial Blueprints, we estimate $30-50MM in additional financial synergies from ET’s lower interest debt.
As for commercial synergies, the most interesting to East Daley is the potential to direct NGLs from CEQP’s plants to ET’s downstream NGL assets, such as its Lone Star pipeline, Mont Belvieu fractionators, or the expanding Nederland export facility (see figure).
On the G&P side, CEQP’s systems fit with ET’s Delaware system and extend the company further into Eddy County, NM. CEQP’s largest customers include Mewbourne and Conoco Phillips (COP), two producers that are also large customers of ET’s Delaware system.
We believe Targa Resources (TRGP) is currently offloading gas to Crestwood’s Sendero plant, and CEQP in return is routing NGLs down TRGP’s Grand Prix pipeline. We expect CEQP to stop taking offload volumes in 3Q23, but it is unclear how long the NGL commitment will last. If it does end with the offtake agreement, that’s an additional 20~25 Mb/d of NGL production that can move to Lone Star.
If ET cannot move those NGL barrels onto Lone Star, the company may still be able to run them through its own fractionators instead of Targa’s, and export those barrels from the Nederland terminal rather than TRGP’s Galena Park facility.
ET may be able to redirect CEQP’s ~50 Mb/d of Bakken and Powder River NGLs as well. Although ONEOK (OKE) would still move those barrels to Mont Belvieu via its Elk Creek and Arbuckle pipelines, those volumes might move from OKE’s fractionators to ET’s. In total, CEQP’s NGLs may be able to fill up half a new fractionator. — Ajay Bakshani, CFA Tickers: CEQP, ET, OKE, TRGP. — Ajay Bakshani, CFA Tickers: CEQP, ET, OKE, TRGP.
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