Devon Energy to Simultaneously Acquire Tall Oak’s Largest Producer
Customer, Felix Energy
Highlights Strong Sponsorship and Alignment Between EnLink and Devon
DALLAS--(BUSINESS WIRE)--
The EnLink Midstream companies, EnLink Midstream Partners, LP (NYSE:
ENLK) (the “Partnership”) and EnLink Midstream, LLC (NYSE: ENLC) (the
“General Partner”) (together “EnLink”), today announced that a
subsidiary of the Partnership and the General Partner signed definitive
agreements to acquire subsidiaries of Tall Oak Midstream, LLC for $1.55
billion, subject to certain adjustments. The purchase price will be paid
in installments, with the first installment of $1.05 billion paid at
closing and the final installment of $500 million paid no later than the
first anniversary of the closing date with the option to defer $250
million of the final installment up to 24 months following the closing
date. The Tall Oak assets serve gathering and processing needs in the
growing STACK and Central Northern Oklahoma Woodford (“CNOW”) plays in
Oklahoma and are supported by long-term, fixed-fee contracts with
acreage dedications that have a remaining weighted-average term of
approximately 15 years.
A subsidiary of Devon Energy Corp. (NYSE: DVN) also announced that it
signed a definitive agreement to acquire Felix Energy, LLC (“Felix”) for
$1.9 billion, subject to certain adjustments. The Felix acreage is
dedicated to the Tall Oak system, making it the largest customer of this
system. The acquisition of Felix will enhance Devon’s size and scale in
the STACK play by adding approximately 80,000 net surface acres
immediately north and northeast of its legacy STACK/Cana position.
“This unique and highly attractive transaction underscores the strength
and synergies of EnLink’s partnership with Devon, demonstrating the
value creation our relationship brings,” said Barry E. Davis, EnLink
President and Chief Executive Officer. “The acquisition is consistent
with our growth strategy and will provide EnLink with an expanded
position in one of the best plays in the nation, the liquids-rich STACK
play, as well as expand our Oklahoma footprint and diversify our
customer base. These assets represent attractive gathering and
processing opportunities that are anchored by long-term, fee-based
contracts that provide stable cash flows.”
Davis continued, “We remain committed to providing long-term value to
our unitholders by growing our business prudently and profitably. The
acquisition financing terms are consistent with EnLink’s goal of
maintaining an investment-grade profile, as well as ample liquidity and
flexibility to continue executing our growth strategy.”
“We are excited about the addition of the oil-focused acreage Devon is
acquiring to further expand our STACK position and pleased with EnLink’s
acquisition of the associated midstream business,” said Dave Hager,
Devon President and Chief Executive Officer. “The oil rich nature of
this expanded STACK position gives Devon a significant inventory of
development opportunities and aligns well with EnLink’s growth strategy.
Working together, Devon and EnLink were able to execute on these two
strong acquisitions at the same time.”
“We are proud of the business we’ve built at Tall Oak, and we’re
grateful to see its success continue in the hands of a company like
EnLink,” said Ryan D. Lewellyn, Tall Oak’s President and Chief Executive
Officer. “We chose EnLink because it has a proven track record and will
take great care of our customers. We look forward to contributing to
their exciting growth opportunities.”
Strategic Benefits of the Transaction
The Tall Oak acquisition is expected to provide significant strategic
benefits to EnLink, including:
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Growth Alignment with Devon. EnLink’s agreement to acquire the
Tall Oak systems and Devon’s agreement to acquire Felix Energy
highlights the strong sponsorship and strategic alignment of EnLink
and Devon on growth opportunities in the STACK play. This supports
EnLink’s ability to continue executing on its growth strategy. Felix’s
prominent position in the region includes 210,000 net effective acres
primarily in Blaine, Canadian and Kingfisher counties located
immediately north and northeast of Devon’s legacy Cana-Woodford
position.
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Enhanced Financial Strength. The financing terms of the
transaction are expected to allow the Partnership to maintain its
investment-grade credit rating and strong balance sheet. The
transaction is expected to be accretive to EnLink’s distributable cash
flow and allow EnLink to continue growing distributions. EnLink
expects the Tall Oak purchase price, combined with near-term capital
expenditures, will be approximately 7.5 to 8 times projected
consolidated adjusted EBITDA of the Tall Oak assets by 2018. EnLink
intends to provide updated earnings and distribution guidance on its
fourth quarter and year-end 2015 conference call to be held in
February 2016.
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Top-Tier Assets in STACK and CNOW. Tall Oak’s assets are
located in the cores of the STACK and CNOW plays, and serve as an
excellent complement to EnLink’s existing position in the
Cana-Woodford. The STACK is one of North America’s premier resource
plays and includes two main stacked formations, the Meramec and the
Woodford Shale. Producers, including Devon, expect to place multiple
horizontal wellbores in each section to fully develop both formations.
Economics in the STACK play are among the most favorable of all
producing regions in the United States with low break-even commodity
prices for producers. The CNOW is an emerging play that includes two
shallow stacked producing formations leading to low-cost wells
reported at less than $2 million per well. The combined Tall Oak and
EnLink assets effectively link the STACK, Cana-Woodford and CNOW plays
and creates a franchise position for EnLink in Oklahoma.
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Expanded Growth Platform. EnLink has the opportunity to build
out the Tall Oak systems by connecting its existing Cana assets to the
Tall Oak assets, which would create a super-system in the heart of the
STACK play. Longer term plans include the potential for connecting
EnLink’s Oklahoma assets to EnLink’s North Texas assets through a
multi-phase pipeline development called the Oklahoma Express project.
Tall Oak also holds crude oil dedications from major customers on its
gas gathering and processing system including Felix. EnLink expects to
work closely with Devon and other STACK customers to develop a
mutually-beneficial crude oil gathering system.
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Focused Producer Customers. The Tall Oak acquisition will also
further diversify EnLink’s producer relationships through contracts
with key producers, which include Felix Energy, PayRock Energy,
American Energy-Woodford and other major customers in the region. The
majority of these customers are focused on development of the acreage
underlying the Tall Oak systems.
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Long-Term, Fee-Based Contracts to Support Growth. Consistent
with EnLink’s business model, Tall Oak’s key contracts are primarily
fee-based with substantial acreage dedications and have a remaining
weighted-average term of approximately 15 years. Devon will provide
EnLink with five-year minimum volume commitments for gathering and
processing of the dedicated Felix acreage.
Asset Overview
Tall Oak’s assets are strategically located in the core areas of the
STACK and CNOW plays. The assets include two gathering and processing
systems and will include a rich gas pipeline currently under
construction that will connect the two systems.
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The Chisholm Plant, which serves the STACK play, is a cryogenic gas
processing plant with a current capacity of 100 million cubic feet of
gas per day (MMcf/d). The facility is currently being expanded by an
additional 200 MMcf/d, which is expected to be completed in the third
quarter of 2016. Depending on future volume requirements, the Chisholm
Plant could be expanded by an additional 400 MMcf/d for a total
processing capacity of 700 MMcf/d. The plant is connected to a
200-mile, low and high-pressure gathering system with compression
facilities. Additional gathering pipelines and compression facilities
are currently under construction.
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The Battle Ridge Plant, which provides EnLink with an entrance into
the CNOW play, is a cryogenic gas processing plant with a current
capacity of 75 MMcf/d. The plant is connected to a 175-mile, low and
high-pressure gathering system with compression facilities. Additional
gathering pipelines and compression facilities are currently under
construction.
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A 42-mile, 16-inch high-pressure header pipeline, with a total
capacity of 150 MMcf/d is under construction to connect Tall Oak’s
Chisolm Plant and Battle Ridge systems. The pipeline, expected to be
in service by year-end 2015, will provide customers with additional
operational flexibility and access to premium residue markets.
Transaction Detail
Under the terms of the definitive agreements, the Partnership and the
General Partner will jointly acquire subsidiaries of Tall Oak Midstream,
LLC for $1.55 billion. Approximately 84 percent of the combined
acquisition will be acquired by the Partnership and the remainder will
be acquired by the General Partner. The purchase price will be paid in
installments, with the first installment of $1.05 billion paid at
closing and the final installment of $500 million paid no later than the
first anniversary of the closing date with the option to defer $250
million of the final installment up to 24 months following the closing
date. The Partnership plans to fund the first installment through its
issuance of $750 million aggregate amount of convertible preferred units
to TPG, a leading global private investment firm, and funds managed by
the Merchant Banking Division of Goldman Sachs and via the Partnership’s
revolving credit facility in an amount equal to $50 million. The General
Partner plans to issue $250 million of ENLC common units directly to the
sellers at closing. The Partnership plans to fund the second installment
with proceeds from the monetization of non-core assets, preferred equity
issuances or other equity issuances. EnLink expects this financing
structure will enable it to maintain its investment-grade credit profile.
In connection with the equity issuance, the size of the Board of
Directors of the Partnership’s general partner will expand from nine to
eleven members and each of Devon and TPG will have the right to appoint
one new member.
“TPG is pleased to make a significant investment in EnLink to help
facilitate this transformative transaction,” said TPG Partner
Christopher Ortega. “The Tall Oak acquisition further solidifies
EnLink’s position as a leading infrastructure provider in the
high-growth STACK play. The Partnership’s attractive asset base,
top-tier balance sheet and strategic partnership with Devon,
collectively make it an exciting investment opportunity. We look forward
to partnering with the EnLink team to continue to accelerate the
Partnership’s strategy and capitalize on growth opportunities in the
future.”
The transaction, which is expected to be completed in the first quarter
of 2016, is subject to the satisfaction of customary closing conditions,
including applicable regulatory approvals, as well as the completion of
Devon’s acquisition of Felix, which is expected to occur concurrently
with the Tall Oak closing.
Advisors
Jefferies LLC is acting as EnLink’s primary financial and technical
advisor on the Tall Oak transaction. Morgan Stanley & Co. LLC is also
acting as financial advisor and was the primary advisor for the
financing transactions. Evercore is acting as financial advisor to the
Partnership’s Conflicts Committee.
Conference Call and Webcast
EnLink will hold a conference call and webcast to discuss the
transaction on Monday, December 7 at 8 a.m. Central time (9 a.m. Eastern
time). The dial-in number for the call is 1-855-656-0924. Callers
outside the United States should dial 1-412-542-4172. Participants can
also preregister for the conference call by navigating to http://dpregister.com/10077096
where they will receive their dial-in information upon completion of
their preregistration.Webcast materials will be accessible on the
Investors page of EnLink Midstream’s website at www.EnLink.com.
Interested parties can also access an archived replay of the call and
the investor presentation on the Investors page of EnLink Midstream’s
website at www.enlink.com.
Separately, Devon will hold a conference call and webcast to discuss the
transaction on Monday, December 7 at 7:00 a.m. Central time (8:00 a.m.
Eastern time).
About the EnLink Midstream Companies
EnLink Midstream is a leading, integrated midstream company with a
diverse geographic footprint and a strong financial foundation,
delivering tailored customer solutions for sustainable growth. EnLink
Midstream is publicly traded through two entities: EnLink Midstream,
LLC (NYSE: ENLC), the publicly traded general partner entity, and EnLink
Midstream Partners, LP (NYSE: ENLK), the master limited partnership.
EnLink Midstream’s assets are located in many of North America’s premier
oil and gas regions, including the Barnett Shale, Permian
Basin, Cana-Woodford Shale, Arkoma-Woodford Shale, Eagle Ford Shale,
Haynesville Shale, Gulf Coast region, Utica Shale and Marcellus Shale.
Based in Dallas, Texas, EnLink Midstream’s assets include over 9,200
miles of gathering and transportation pipelines, 17 processing plants
with 3.6 billion cubic feet per day of processing capacity, seven
fractionators with 280,000 barrels per day of fractionation capacity, as
well as barge and rail terminals, product storage facilities, purchase
and marketing capabilities, brine disposal wells, an extensive crude oil
trucking fleet and equity investments in certain private midstream
companies.
Additional information about the EnLink Midstream companies can be found
at www.EnLink.com.
Non-GAAP Financial Information
The script and presentation accompanying this press release on EnLink
Midstream’s website contain non-generally accepted accounting principle
financial measures that we refer to as adjusted EBITDA and distributable
cash flow. We define adjusted EBITDA as net income from continuing
operations plus interest expense, provision for income taxes,
depreciation and amortization expense, impairments, unit-based
compensation, (gain) loss on noncash derivatives, transaction costs,
distribution of equity investment and non-controlling interest and
income (loss) on equity investment. We define distributable cash flow as
net cash provided by operating activities plus adjusted EBITDA, net to
EnLink Midstream Partners, LP, less interest expense, litigation
settlement adjustment, interest rate swap proceeds, cash taxes and
other, maintenance capital expenditures and the adjusted EBITDA of
EnLink Midstream Holdings, LP.
The amounts included in the calculation of these measures are computed
in accordance with generally accepted accounting principles (GAAP) with
the exception of maintenance capital expenditures. Maintenance capital
expenditures are capital expenditures made to replace partially or fully
depreciated assets in order to maintain the existing operating capacity
of the assets and to extend their useful lives.
The Partnership and General Partner believe these measures are useful to
investors because they may provide users of this financial information
with meaningful comparisons between current results and prior-reported
results and a meaningful measure of the Partnership’s and the General
Partner's cash flow after it has satisfied the capital and related
requirements of its operations.
Adjusted EBITDA and distributable cash flow, as defined above, are not
measures of financial performance or liquidity under GAAP. They should
not be considered in isolation or as an indicator of the Partnership’s
and the General Partner's performance. Furthermore, they should not be
seen as a substitute for metrics prepared in accordance with GAAP.
Forward-Looking Statements
This press release contains forward-looking statements within the
meaning of the federal securities laws. These statements are based on
certain assumptions made by the Partnership and the General Partner
based upon management's experience and perception of historical trends,
current conditions, expected future developments and other factors the
Partnership and the General Partner believe are appropriate in the
circumstances. These statements include, but are not limited to,
statements about future financial and operating results, objectives,
expectations and intentions that are not historical facts. Such
statements are subject to a number of assumptions, risks and
uncertainties, many of which are beyond the control of the Partnership
and the General Partner, which may cause the Partnership's and the
General Partner’s actual results to differ materially from those implied
or expressed by the forward-looking statements. These risks include, but
are not limited to, the failure to consummate the transactions, the risk
that the Partnership does not complete its financing transactions to
fund the transactions, the risk that the entities and assets to be
acquired will not be successfully integrated or that such integration
will take longer than expected, the risk that the entities and assets to
be acquired will not perform as expected, the risk that the assets to be
acquired fail to generate follow-on investment opportunities, the risk
that the transaction does not result in expected synergies, the risk
that EnLink fails to enter into an arrangement with Devon regarding
minimum volume commitments, the risk that the Partnership fails to
maintain its investment grade credit rating, the risk that the
contemplated construction projects are not completed on time or at all,
regulatory, economic and market conditions and other risks discussed in
the Partnership's and the General Partner’s filings with the Securities
and Exchange Commission. The Partnership and the General Partner have no
obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
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Source: EnLink Midstream