Enterprise buys into Permian natural gas market with $3.3B acquisition

Christine Buurma and Gerson Freitas Jr. January 10, 2022

(Bloomberg) --Enterprise Products Partners LP agreed to buy Navitas Midstream Partners LLC from Warburg Pincus LLC for $3.25 billion in cash to add natural gas pipeline and processing assets in the Permian Basin, the world’s most prolific shale basin.

The acquisition, Enterprise’s largest since 2014, will expand the company’s reach into the Midland Basin, part of the Permian, to include gas processing and natural gas liquids. Drilling activity in the Midland Basin represents about 20% of active onshore drilling rigs in the U.S., according to Enterprise.

“We do not have a natural gas or NGL presence in the Midland Basin other than downstream pipelines,” Jim Teague, Enterprise’s co-chief executive officer, said Monday in a statement, referring to natural gas liquids. “This acquisition will give us an entry point.”

Pipeline operators with excess cash are increasingly turning to mergers and acquisitions as they face limited opportunities to grow via new conduits amid increased opposition to fossil fuel projects.

“It seems like a strong deal” for Enterprise, says Gabriel Moreen, a managing director at Mizuho Securities LLC. Navitas’s assets integrate well with Enterprise’s existing gas liquids conduits, which should improve their utilization, Moreen said. “For the industry as a whole, it shows consolidation is happening -- slowly but surely.”

Enterprise fell as much as 1.3% as of 10:04 a.m. in New York trading.

Navitas’s assets include about 1,750 miles (2,816 kilometers) of pipelines and more than 1 billion cubic feet a day of gas-processing capacity with the Leiker plant in the Midland Basin, which is expected to be completed in the first quarter.

Though Permian drillers are focused on extracting oil, they also produce gas, which must be burned off if there isn’t enough pipeline capacity available. That practice, known as flaring, has come under increasing scrutiny for its environmental impacts.

The deal is expected to close in the first quarter. It’s Enterprise’s largest transaction since its acquisition of Oiltanking Partners LP in 2014 for about $4.4 billion, according to data compiled by Bloomberg.

Jefferies LLC served as financial adviser to Navitas in connection with the Enterprise deal, and Kirkland & Ellis served as legal adviser.

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