ONEOK (OKE) has become a big dealmaker in the midstream space, recently closing on $5.9B in acquisitions. Along with GIP’s stake in EnLink Midstream (ENLC), OKE is buying Medallion Midstream for $2.6B and expanding into Permian crude gathering. Strategically the move makes sense, and follows a strategy East Daley is seeing with other G&P and NGL asset deals: move closer to the wellhead to secure supply for downstream pipes and marketing.
Recent crude acquisitions have generally flown under the radar, yet the Medallion Midstream deal continues a trend: Plains All American (PAA) and Oryx merged their Permian crude gathering assets in 2021, Energy Transfer (ET) acquired crude gatherer Lotus Midstream in 2023, and ET recently merged its Permian crude gathering assets (including systems acquired via Lotus) with Sunoco LP’s (SUN) NuStar Permian gathering system.
In our Dirty Little Secrets annual report, East Daley highlighted NS and PAA as potential targets specifically for their Permian crude gathering assets, and the opportunity to leverage volumes to feed downstream pipelines, storage tanks, export terminals and marketing operations. The playbook is the same for OKE-Medallion.
However, the deal multiple screens high for crude gathering assets, and implies a significant amount of synergies. Medallion’s trailing 12 month (TTM) EBITDA as of 1Q24 only totals $275MM across its assets regulated by the Federal Energy Regulatory Commission (FERC). We arrive at a 9.5x multiple before synergies, much higher than our 7.5x multiple estimate for ET's acquisition of Lotus.
OKE cited a 6.3x multiple post-synergies, implying ~$100-150MM of growth and synergies, which seems high on an EBITDA base of $275MM. That said, ET’s acquisition of Lotus seems to have generated significant commercial synergies for the company, so it is not out of the question that OKE can do the same with Medallion, which is even bigger than Lotus.
Data from the Texas Railroad Commission indicates Medallion gathered ~850 Mb/d in May 2024 (see figure). Only 4 Mb/d is currently delivered into existing OKE systems, providing a clear upside opportunity for pipes like BridgeTex and Longhorn. – Ajay Bakshani, CFA Tickers: ENLC, ET, OKE.
*Correction: Medallion deliveries to PSX shown in the figure refers to Gray Oak Pipeline, which is now majority owned (68.5%) and operated by Enbridge (ENB).
NEW Webinar – Fast and Furious: Production, Constraints and Opportunity
East Daley will host our latest MCAP webinar on September 25th at 10 am MT. In “Fast and Furious: Production, Constraints and Opportunity,” we will look at opportunities across the energy complex:
- Crude: Double H Conversion's impact on crude fundamentals, and who can capture that upside.
- Gas: What the Blackcomb pipeline means for TRGP's G&P growth in the Permian.
- NGLs: The fight for barrels in the Permian, and the implications of OKE's acquisition of ENLC.
Register here to join us.
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