Equitrans Midstream, which used to be called EQT Midstream, yesterday announced they have cut their first big deal since separating from EQT last year. Equitrans is buying a 60% stake in Eureka Midstream, a 190-mile pipeline system in Ohio and West Virginia serving both the Marcellus and Utica, and a 100% stake in the tiny 15-mile Hornet Midstream, a gathering system in WV that connects to Eureka.
Total purchase price for the two systems is $1.03 billion, broken down as $860 million in cash and approximately $170 million of assumed debt. The deal adds approximately 200,000 acres of service area contiguous to Equitrans’ existing service area in the “core” of the M-U.
We’d never heard of Hornet Midstream until the name popped up in this sale, but we know plenty about Eureka, once a subsidiary of Magnum Hunter Resources. Magnum Hunter spun Eureka out into a standalone company prior to Magnum going through bankruptcy in 2016.
In October 2017, Eureka acknowledged the former Magnum Hunter no longer owned any of it (see Eureka Midstream Confirms MDN Article on New Ownership). Morgan Stanley is (or was) the major shareholder. Eureka issued a press release last October to say, “Hey, we’re still here and we’re bigger than ever.” The company said it flows over 1.5 billion cubic feet per day (Bcf/d) of Marcellus/Utica natural gas through its gathering system (see Eureka Midstream Now Flows 1.5+ Bcf/d of Marcellus/Utica Gas).
Equitrans is buying Eureka and Hornet from Morgan Stanley:
Equitrans Midstream Corporation (NYSE: ETRN) and EQM Midstream Partners, LP (NYSE: EQM) today announced that EQM has entered into a definitive agreement with a fund managed by Morgan Stanley Infrastructure Partners to acquire a 60% interest in Eureka Midstream Holdings, LLC (Eureka Midstream) and a 100% interest in Hornet Midstream Holdings, LLC (Hornet Midstream) for total consideration of $1,030 million, comprised of approximately $860 million in cash and approximately $170 million of assumed pro-rata debt. The proposed acquisition is expected to close on or about April 15, 2019, subject to customary regulatory and other closing conditions.
“This bolt-on acquisition, within our footprint, leverages our existing assets and core operating competencies and is the first step in executing our strategy to grow into a top-tier midstream company,” said Thomas F. Karam, chief executive officer of EQM. “These assets will complement EQM’s basin-leading gathering and transmission system, allowing us to continue being the low-cost provider for gas transportation and, increasingly, for water handling as well. As we continue to implement our plan, we are committed to maintaining our strong balance sheet and to delivering shareholder value.”
“The Eureka team did a tremendous job in building out the system during the last few years and attracting a strong mix of producer customers,” added Diana M. Charletta, chief operating officer of EQM. “With the ongoing natural gas development activity surrounding the Eureka system, we see significant value in leveraging our fast-growing water services business. We want to be the low-cost provider and partner of choice across all aspects of our business. This acquisition will help us achieve our goal by providing added scale and by allowing us to facilitate new commercial opportunities to deliver innovative and cost-effective solutions for our customers.”
Eureka Midstream is a 190-mile gathering header pipeline system in Ohio and West Virginia that services both dry Utica and wet Marcellus production. Hornet Midstream is a 15-mile, high-pressure gathering system in West Virginia that connects to the Eureka system.
- Averaged approximately 1.6 Bcf/d gathered volume during Q4 2018
- Minimum volume commitments (MVCs) of 0.8 Bcf/d and growing to 1.3 Bcf/d by 2021
- Volume mix of 67% dry gas and 33% wet gas
- Approximately 200,000 acres dedicated in core Marcellus and Utica
- Multiple producer customers with 17-year weighted average contract life
- Several interstate pipeline interconnects and access to four major processing plants
- Access to EQM system and downstream pipelines at Clarington, OH and Mobley, WV
Combined, the gathering system assets and complementary water services opportunities are expected to generate approximately $100 million of EQM EBITDA during the first twelve months. EQM forecasts that the acquired assets and corresponding water services will achieve greater than 20% annual EBITDA growth over the next several years. The transaction is expected to be neutral to EQM distributable cash flow over the first 12-months and accretive thereafter.
EQM will fund the acquisition with cash proceeds from the issuance of $1,100 million of newly issued Series A Convertible Preferred Units (Convertible Preferred Units). The financing is consistent with EQM’s leverage targets, and the Convertible Preferred Units issuance is expected to close simultaneously with the proposed acquisition close. EQM has entered into an agreement to sell the Convertible Preferred Units to lead investors consisting of funds managed by BlackRock, GSO Capital Partners, and Magnetar Capital; and to supporting investors The Carlyle Group and Foundation Infrastructure Partners in connection with Neuberger Berman Private Credit. The Convertible Preferred Units will receive quarterly cash distributions based on an 8.5% annual coupon. Two years after issuance, the Convertible Preferred Units will be convertible by the holders on a one-for-one basis into EQM Common Units and convertible by EQM, under certain circumstances. The Convertible Preferred Units will be priced at $48.77 per unit, a 20.0% premium to the 20-day volume weighted average price of the EQM Common Units, prior to agreement signing.
Citi and Guggenheim Securities, LLC are acting as financial advisors and Latham & Watkins is acting as legal advisor to ETRN and EQM. Citi and Guggenheim Securities, LLC are also acting as joint placement agents for the Convertible Preferred Units issuance.*
*Equitrans Midstream Corporation (Mar 14, 2019) – EQM Midstream Partners Announces Strategic, Bolt-on Acquisition
Below is a map showing the location of Equitrans’ existing pipeline network along with the locations of Eureka and Hornet. Notice the dotted line that indicates Equitrans’ “In-Flight Pipeline Project.” We believe that shows the location of both the Hammerhead project (from PA to Mobley, WV), and Mountain Valley Pipeline (from Mobley south).
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