Summit Midstream (SMC) will acquire Tall Oak Midstream III for a mix of cash and equity. Tall Oak gives SMC its first G&P assets in the Arkoma Basin, and more exposure to potential upside ahead in natural gas.
Summit announced the deal October 1 for Tall Oak Midstream Operating, LLC and subsidiaries with an affiliate of Tailwater Capital. The Tall Oak Midstream III assets include gas gathering (400+ miles of low- and high-pressure pipeline) and the Panther Creek and Stanberry plants (420 MMcf/d processing capacity) in the Arkoma-STACK play in eastern Oklahoma. The companies expect to close the transaction in 4Q24.
Tall Oak is one of many private G&P systems East Daley Analytics tracks in Energy Data Studio. Tall Oak currently moves processed gas on MarkWest’s Arkoma Connector, and ONEOK (OKE) handles its NGLs. The system is supported by acreage dedications from key customers covering ~315,000 acres.
East Daley projects production on Tall Oak will average 210 MMcf/d in 2024 and 214 MMcf/d for 2025 (see figure). Based on the forecasted level of activity and a 2025E Adjusted EBITDA of $248MM, we calculate an accretive acquisition multiple of ~5.6x, in line with SMC’s estimate.
Tall Oak expands Summit's position in gas-focused basins where it can benefit from growing LNG export demand. The system is backed by long-term, fee-based gathering agreements with an average contract length of around 13 years.
Summit will pay $155MMMM in cash and ~7.5MM shares of SMC Class B common stock and partnership units, representing 40% ownership in the company. SMC will also pay up to $25MM in contingent fees through March 31, 2026. Post-acquisition, Tailwater Capital will own 35% of SMC, and another entity will hold 5%. – Maria Paz Urdaneta Tickers: OKE, SMC.
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