Crestwood Midstream Partners Expands Bakken Shale Footprint with $750 Million Acquisition of Arrow Midstream

abarrelfullabarrelfull wrote on 12 Oct 2013 07:35
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Crestwood Midstream Partners LP (NYSE: CMLP) ("Crestwood" or the "Partnership") today announced that its wholly-owned subsidiary, Crestwood Arrow Acquisition LLC ("Crestwood Arrow"), has entered into an agreement to acquire Arrow Midstream Holdings, LLC ("Arrow"), a privately-held midstream company, for approximately $750 million, subject to customary purchase price adjustments. The acquisition marks a continuation of Crestwood's liquids-focused strategy by significantly expanding Crestwood's operational footprint in the Bakken Shale and highlights the immediate benefits of the merger of Crestwood and Inergy Midstream, which was completed on Monday, October 7, 2013. The transaction is expected to be immediately accretive to Crestwood's estimated distributable cash flow per limited partner unit in 2014, with growing accretion thereafter based upon projected production increases from the Arrow assets. The transaction is expected to close in the fourth quarter of 2013.

Arrow, through its wholly-owned subsidiaries, owns and operates substantial crude oil, natural gas and water gathering systems located on the Fort Berthold Indian Reservation in the core of the Bakken Shale in McKenzie and Dunn Counties, North Dakota. The system today consists of over 460 miles of gathering pipeline including 150 miles of crude oil gathering pipeline, 160 miles of natural gas gathering pipeline, and 150 miles of water gathering lines. Current volumes on the system are approximately 50,000 barrels per day ("Bbls/d") of crude oil, 15 million cubic feet per day ("MMcf/d") of rich natural gas and 8,500 Bbls/d of water. Additionally, the acquired assets include salt water disposal wells and a 23-acre central delivery point ("CDP") with multiple pipeline take-away outlets and a fully-automated truck loading facility.

The Arrow gathering systems are anchored by long-term, primarily fee-based, gathering contracts with blue chip producers who have dedicated over 150,000 acres to Arrow including more than 1,000 potential drilling locations on the acreage. The producer customers are all world-class shale developers who have substantial development programs on the dedicated acreage and have identified the Bakken Shale as a significant driver of their future production growth. The contracts provide for fixed-fee gathering services with annual escalators for crude, natural gas and water gathering services. There are currently eight drilling rigs running in the area of dedication with additional rig activity in areas immediately adjacent to the system.

The Arrow systems are located approximately 60 miles southeast of Crestwood's COLT Hub ("COLT") crude rail and pipeline terminal, located in Williams County, North Dakota, and have direct connectivity with COLT through the Hiland and Tesoro crude oil pipeline systems. The COLT Hub is one of the Bakken Shale's leading rail transportation avenues for East Coast and West Coast markets with current COLT Hub rail loading capacity being expanded to 160,000 Bbls/d. Many of Crestwood's largest customers at COLT are also major purchasers of crude oil at the Arrow CDP, and the direct connectivity between Arrow and COLT provides significant opportunity for synergies and expanded customer services. By utilizing its existing Bakken infrastructure, market knowledge and midstream expertise across the value chain, Crestwood is well-positioned to link growing crude supply from the Arrow system to market demand at COLT, resulting in improved sales optionality and optimal pricing for Arrow producers while increasing supply sourcing options as well as overall demand and utilization for market customers at COLT.

"We are very excited about the addition of the Arrow assets to Crestwood's rapidly expanding crude services business and our Bakken Shale footprint," stated Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood's general partner. "We believe this transaction is a strong first step in executing Crestwood's growth strategy following our recently closed merger with Inergy. The Bakken Shale is a core area for our future growth, and by extending our platform upstream of COLT, Crestwood will be expanding and optimizing the full suite of liquids value chain services we can provide for both our producer and demand-side customers. We are keenly focused on growing our crude oil and NGL businesses. After the close of this transaction, we will be one of the largest Bakken midstream service providers servicing approximately 18% of current total Bakken crude oil production. Nationwide, we will be handling over 470,000 Bbls/d of crude oil and NGLs in addition to over 2 billion cubic feet per day of natural gas through our gathering systems and transportation assets."

Mr. Phillips added, "Because of the early integration efforts of Crestwood and Inergy's commercial, operations and back-office teams in advance of the merger, the addition of the Arrow assets and operations will effectively be like a bolt-on acquisition. Additionally, our current operations at the nearby COLT Hub provide a base of operations to quickly integrate Arrow into the Crestwood operating model. We are very impressed with the operating platform the Arrow team has established in the area and are excited to transition the organization into the Crestwood family. Like Crestwood, the Arrow operational and commercial staff is committed to safe and reliable operations, first-class customer service, and active involvement and support for the communities and environments in which we operate. Importantly, Arrow has established a great local operating relationship with the Mandan, Hidatsa & Arikara Nation ("MHA") and Crestwood is committed to maintaining and nurturing the MHA relationship as we jointly work to expand the systems, benefitting both producers and royalty owners in the area. The opportunity around our Bakken Shale position is significant, and we are very excited to shift our focus from the merger and the Arrow acquisition to the execution of our growth strategy across the midstream value chain."

The Arrow system is currently undergoing an extensive expansion of its gas gathering capacity to capture current flared natural gas volumes. These enhancement projects, including line looping and system compression, are expected to be substantially complete in the fourth quarter of 2013. Thereafter, the systems will be primarily built-out with modest organic capital requirements of approximately $80 million over the next 18 to 24 months to reach targeted operational throughput capacities of 125,000 Bbls/d of crude oil, 100 MMcf/d of natural gas, and 40,000 Bbls/d of water.

Citi acted as exclusive financial advisor to Crestwood. In connection with the transaction, Crestwood has secured fully-committed debt financing from Citi Global Markets Inc. and fully-committed equity financing in the form of equity consideration paid directly to the seller as well as additional equity financing from undisclosed accredited investors. There are no financing contingencies to close the transaction.

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