DT Midstream To Acquire 3.7 Bcfd Midwest Pipelines From ONEOK

Wedoany.com Report-Nov 21,  ONEOK Inc. agreed to sell three natural gas pipelines with an aggregate capacity of 3.7 billion cubic feet a day (Bcfd) to DT Midstream Inc. for $1.2 billion, the companies said Tuesday.

Expected to close by yearend or early 2025, the transaction involves 1,300 miles of pipelines straddling seven states “in the attractive Midwest market region which is expected to experience continued growth in power demand”, Detroit, Michigan-based DT Midstream said in a statement online.

DT Midstream launched an underwritten public offering of $300 million shares and said it plans to issue up to $650 million in senior secured notes to help fund the purchase. It also expects to tap on its revolving credit facility, with debt accounting for a total of about $900 million of the funding sources. Barclays, which served as financial advisor to the buyer, committed financing. DT Midstream said it would also use cash on hand.

The cash transaction, which involves no assumed debt, consists of Guardian Pipeline LLC, Midwestern Gas Transmission Co. and Viking Gas Transmission Co. — all regulated by the Federal Energy Regulatory Commission.

Guardian Pipeline, which stretches around 260 miles, is an interstate pipeline interconnected with DT Midstream’s Vector Pipeline and the Chicago Hub. Guardian Pipeline serves Wisconsin.

Interconnected with Guardian Pipeline, Midwestern Gas Transmission is a bi-directional interstate pipeline measuring approximately 400 miles. It brings Appalachia gas to the Midwest market between Tennessee and the Chicago Hub.

Viking Gas Transmission, about 675 miles, is also an interstate pipeline that delivers Canadian supply from Emerson, Manitoba, to utility customers in Minnesota, Wisconsin and North Dakota.

As part of the acquisition, workers at the pipelines will transfer to the new owner.

The transaction is subject to anti-trust reviews by the Justice Department or the Federal Trade Commission.

“Expanding our scale through this bolt-on natural gas pipeline acquisition fully aligns with our pure play natural gas strategy”, DT Midstream president and chief executive David Slater said. “This transaction also increases the revenue contribution from our pipeline segment, supported by take-or-pay contracts with strong credit quality utility customers”.

DT Midstream expects the new assets to grow the share of its pipeline segment in the company’s EBITDA to about 70 percent in 2025, assuming adjustments for non-recurring or extraordinary items. “Overall, the acquired portfolio has an approximately 90 percent demand-pull customer base with approximately 85 percent of revenues from investment-grade customers”, it added.

For Tulsa, Oklahoma-based ONEOK, the divestment is “expected to enhance ONEOK's financial flexibility and ONEOK's deleveraging trend toward its previously announced target of 3.5 times during 2026”, the seller said separately.

“Based on Federal Energy Regulatory Commission filings, the purchase price represents 10.8 times previous 12 months EBITDA as of June 30, 2024”, ONEOK said.

ONEOK president and chief executive Pierce H. Norton II said, "This transaction will align and enhance our capital allocation priorities within our integrated operating footprint”.

The divestment comes on the heels of ONEOK’s $3.3 billion acquisition of Global Infrastructure Partners’ (GIP) stake in EnLink Midstream LLC and $2.6 billion takeover of Medallion Midstream LLC, also from GIP.

The EnLink acquisition, which has given ONEOK a 43 percent share in EnLink’s common shares, adds 1.7 Bcfd of Permian gas processing capacity and 1.6 million barrels per day (bpd) of Permian crude oil gathering capacity to ONEOK’s portfolio.

Medallion’s assets included over 1,200 miles of petroleum gathering pipelines that provide about 1.3 million bpd of capacity and about 1.5 million barrels of crude oil storage in the Permian Basin.

"With the acquisition of Medallion, the largest privately held crude gathering and transportation system in the Permian's Midland Basin, we continue our demonstrated track record of intentional and disciplined growth”, Norton II said in a company statement October 31 announcing the completion of the transaction. "This acquisition further diversifies ONEOK's asset portfolio and adds an expansive and well-connected crude oil gathering system to our Permian Basin platform.

"We expect to drive meaningful commercial synergies from these complementary assets, which already connect with ONEOK's long-haul crude oil pipelines out of the basin”.