Enterprise Products (EPD) has agreed to purchase sour gas gathering and treating infrastructure from Pinon Midstream for $950MM in cash. The deal spotlights “off-spec” sour gas increasingly produced as operators explore shallower areas in the eastern Delaware Basin.
Located in Lea County, NM, the Pinon assets include 50 miles of gathering lines, two acid gas injection wells with 20 MMcf/d of capacity, a sour gas treating facility with 270 MMcf/d of capacity, plus compressors. An expansion is planned to increase treating capacity to 450 MMcf/d in 2H25. The assets are located in a part of the Delaware known for higher hydrogen sulfide (H2S) and carbon dioxide (CO2) content, particularly in shallower reservoir targets.
As development increases in the eastern Delaware, East Daley sees more need for sour gas treating and injection facilities due to the high concentrations of H2S and CO2 produced in shallower reservoirs. For example, Delaware-focused Kinetik (KNTK) has outfitted all its processing facilities with front-end amine treaters so the company can expand into New Mexico to process off-spec gas.
The Pinon assets will add $0.03/share of distributable cash flow in 2025, according to EPD guidance, or ~$65MM. Assuming the expansion fully ramps, East Daley estimates the Pinon assets will generate ~$99.5MM in EBITDA in 2026 in the EPD Financial Blueprint, representing a 9.6x EBITDA multiple on the $950MM purchase price.
EPD's guidance does not include commercial synergies. If the company can capture the sweet gas volumes currently processed by TRGP and Salt Creek, the Pinon assets would provide additional upside and lower the multiple.
Our 9.6x estimated multiple screens high for these types of assets. But if Enterprise can redirect all of Pinon’s volumes to its Delaware system and incentivize additional drilling (by expanding treating and injection capacity), the deal could prove a highly strategic move.
Producers in the past have shied away from drilling in the eastern Delaware due to gas quality issues, despite the prolific crude oil reservoir. We expect these expansions for gas treating will accelerate development, in turn providing more downstream volumes to support Enterprise’s integrated value chain in the Permian. – James Taylor and Ajay Bakshani, CFA Tickers: EPD, KNTK, TRGP.
Join East Daley TODAY - NGLs Heading into a Super-Volatility Cycle
Join us for this exclusive webinar diving into trends in NGL markets. We will look at:
Join us on August 28 at 10 AM MST. Register here.
Sign Up for the Crude Oil Edge
East Daley’s Crude Oil Edge provides weekly updates on the US crude oil market including supply and demand fundamentals, basin-level views, and analysis of market constraints and infrastructure proposals. We explore sub-basin dynamics and provide market insights on crude oil flows, production growth, and import and export characteristics. Sign up now for the Crude Oil Edge.
The Daley Note
Subscribe to The Daley Note (TDN) for midstream insights delivered daily to your inbox. The Daley Note covers news, commodity prices, security prices and EDA research likely to affect markets in the short term.