Best of 2024: The Daley Note: June 25, 2024. In our annual report Dirty Little Secrets, East Daley previewed how reduced leverage ratios and increased Free Cash Flow (FCF) relative to 2019 have created conditions that support increased M&A activity. We have seen this theme play out in the recent transactions of G&P systems in the Permian: The Energy Transfers (ET) acquisition of West Texas Gas Midstream (WTG), the Phillips 66 (PSX) acquisition of Pinnacle Midstream, and the Kinetik (KNTK) acquisition of Durango Midstream.
Through these transactions, PSX increased NGL production 15% and processing capacity 18%, KNTK increased NGL production 10% and processing capacity 11%, and ET increased NGL production 39% and processing capacity 11%. The top-8 midstream companies in the Permian now account for 82% of processing capacity in the basin.
East Daley sees opportunity for midstream companies to continue to compete for incremental NGL barrels through acquisitions of smaller private systems, but the question is what systems are left?
Among the remaining private systems, promising acquisition targets include Salt Creek Midstream, Brazos Midstream, Stakeholder Midstream, and Canes Midstream. Together, these four private companies account for 5.8% of processing capacity not owned by major midstream company.
East Daley will provide further analysis of private systems and their potential public suitors in our upcoming webinar Musical Chairs: The Permian G&P Deal Frenzy and Who’s Left Standing. Here, we preview the analysis through the example of the Salt Creek Midstream system in the Southern portion of the Delaware.
The system is primarily backed by Petro-Hunt, Civitas, and Marathon and has 400MMcf/d of processing capacity and an LTM Avg. NGL production of ~32Mb/d. The Pecos Gas Processing plant has connectivity to EPIC Y-Grade and Shin Oak NGL Pipelines. If Ares Management Corporation seeks to realize their 2017 investment, East Daley speculates that MPLX, Enterprise (EPD), and Western Midstream (WES) would be potential suitors. -Zach Krause Tickers: ET, EPD, KNTK, MPLX, PSX, WES.
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