Summit Midstream finalises $155m acquisition of Tall Oak Midstream

Summit Midstream Corporation has completed its $155 million acquisition of Tall Oak Midstream Operating, LLC, marking a significant milestone in its strategic expansion. This transformative deal, which includes cash, equity, and contingent payments, significantly enhances Summit Midstream Corporation’s operational footprint in the energy sector and positions the company for accelerated growth in natural gas operations.

A transformative acquisition for summit midstream

The acquisition of Tall Oak Midstream was structured with an upfront cash payment of $155 million, financed through Summit Midstream Corporation’s credit facility. Additionally, 7.5 million shares of Summit Midstream Class B common stock and 7.5 million common units of its subsidiary were issued to Tailwater Capital LLC, the seller. This structure ensures a 35% equity stake for Tailwater Capital LLC in the pro forma entity. The agreement also includes up to $25 million in contingent cash payments based on performance metrics through March 2026.

With the deal’s completion, Summit now has access to Tall Oak Midstream’s substantial Arkoma Basin assets, including two processing plants with a combined capacity of 440 million cubic feet per day, more than 400 miles of pipelines, and over 315,000 acres of dedicated natural gas production under long-term contracts averaging 13 years.

Boosting natural gas exposure and operational scale

Summit’s CEO, Heath Deneke, emphasized that the acquisition aligns perfectly with the company’s energy acquisition strategy to enhance its natural gas operations. He noted that the Tall Oak Midstream system significantly complements Summit’s existing assets by providing access to Gulf Coast markets and other key destinations such as Mexico and regional power generation facilities.

Industry analysts view this acquisition as a strategic move, particularly given the growing demand for natural gas driven by LNG exports and global energy needs. Summit Midstream Corporation’s balanced portfolio now includes a nearly equal focus on oil and natural gas operations, further diversifying its revenue streams and reducing market volatility risks.

The deal also marks a step toward improved financial flexibility. By reducing Summit Midstream Corporation’s leverage ratio to 3.8x and enhancing free cash flow generation, the company is better positioned to pursue additional acquisitions or consider returning capital to shareholders through dividends or share buybacks in 2025.

Expert insights on energy consolidation

Tailwater Capital LLC, the private equity firm that previously owned Tall Oak Midstream, described the transaction as a win-win. Its co-founder, Jason Downie, emphasized that the deal creates synergies by combining Summit’s existing infrastructure with Tall Oak Midstream’s high-quality Arkoma Basin assets. Downie expressed optimism that Summit Midstream Corporation’s enhanced scale and resources would unlock additional value for shareholders.

Industry observers have noted that the acquisition reflects a broader trend of consolidation in the energy sector, where companies are seeking to streamline operations and leverage economies of scale to remain competitive. By acquiring Tall Oak Midstream, Summit Midstream Corporation is well-positioned to take advantage of these dynamics, particularly as global demand for natural gas operations continues to rise.

Governance and future plans

As part of the agreement, four directors appointed by Tailwater Capital LLC will join Summit’s board, creating a collaborative governance structure while maintaining continuity. Summit’s leadership team, including its CEO and key executives, will remain in place, ensuring a seamless integration of Tall Oak Midstream’s operations.

Summit Midstream Corporation is now setting its sights on future opportunities. With a pro forma adjusted EBITDA of approximately $250 million for 2024, the company has the financial strength to explore further energy acquisition strategies and expand its footprint in the energy sector.

The acquisition of Tall Oak Midstream represents a pivotal moment for Summit Midstream Corporation. By expanding its Arkoma Basin assets, improving financial flexibility, and diversifying its portfolio, Summit is positioning itself for long-term energy sector growth in the evolving global market for natural gas operations.