Energy Transfer to acquire WTG Midstream for $3.25bn in strategic expansion

In a significant expansion of its midstream operations, Energy Transfer LP (NYSE: ET) has agreed to acquire WTG Midstream Holdings LLC from affiliates of Stonepeak, the Davis Estate, and Diamondback Energy, Inc. The deal, valued at approximately $3.25 billion, comprises $2.45 billion in cash and about 50.8 million newly issued Energy Transfer common units. This acquisition is expected to close in the third quarter of 2024, pending regulatory approvals and customary closing conditions.

Strategic Implications and Expansion of Operations

WTG Midstream, LLC, a key provider of comprehensive midstream services, operates a 6,000-mile pipeline network across vital areas of the Midland Basin, including counties like Martin, Howard, Upton, Reagan, and Irion. These operations are crucial as they serve major operators in one of the most actively drilled regions in the U.S. Furthermore, WTG manages eight processing plants with a combined capacity of roughly 1.3 billion cubic feet per day (Bcf/d) and is in the process of adding two more plants, which will increase its capacity by approximately 0.4 Bcf/d.

The acquisition also includes a 20% interest in BANGL Pipeline, a 425-mile NGL pipeline connecting the Permian Basin to Texas Gulf Coast markets, with potential for capacity expansion from 125,000 barrels per day to over 300,000. This strategic move is set to enhance Energy Transfer’s footprint in the Permian Basin, ensuring access to increasing supplies of natural gas and NGLs, thus bolstering their downstream business capabilities.

Energy Transfer to acquire WTG Midstream

Financial Outlook and Benefits

Energy Transfer anticipates that the integration of WTG’s assets will provide significant financial benefits, including an expected increase in Distributable Cash Flow (DCF). By 2025, the DCF per common unit is projected to rise by about $0.04, growing to approximately $0.07 per unit by 2027. The firm financial grounding of this deal is supported by WTG’s robust customer base, mainly comprising large cap, investment-grade producers with long-term contracts averaging over eight years.

Advisory Roles and Future Prospects

RBC Capital Markets and Vinson & Elkins LLP are advising Energy Transfer on this transaction, with Jefferies LLC and Sidley Austin LLP advising WTG. The completion of this deal not only solidifies Energy Transfer’s leadership in the U.S. energy sector but also strategically positions the company to capitalize on future growth opportunities in the Permian Basin.

Energy Transfer owns and operates one of the most diversified portfolios of energy assets in the U.S., spanning over 125,000 miles of pipeline across 44 states. This acquisition from WTG Midstream is poised to further enhance its extensive network, underlining its commitment to maintaining and expanding its strategic operations in major U.S. production basins.