Kinetik, a Permian-to-Gulf Coast midstream operator, has agreed to acquire Durango Permian, a Texas-based midstream company, in a cash and stock deal worth up to $840m.
As per the terms of the deal, Kinetik will pay $315m in cash and issue around 3.8 million of its shares as consideration to Durango Midstream, the parent company of Durango Permian. This amounts to a total upfront consideration of $765m.
Durango Midstream is an affiliate of Morgan Stanley Energy Partners.
The deal also includes a contingent payment of up to $75m. This will be linked to the capital cost for the Kings Landing complex, a natural gas gathering facility in the Permian Basin of southeast New Mexico.
The 200 million cubic feet per day greenfield processing complex is currently under construction. Anticipated to be ready in April 2025, the Kings Landing facility will boost the processing capacity of Durango Permian to 420 million cubic feet per day.
Kinetik expects further net capital expenditures of $78m for completing the construction of the Kings Landing complex.
Additionally, Kinetik has forged a 15-year deal with one of its key clients, having a considerable footprint in Eddy County, New Mexico, to deliver low-pressure and high-pressure gas gathering and processing services.
Kinetik will undertake the construction of gathering infrastructure, amounting to an estimated $200m in capital expenditure by 2026. The contract is slated to begin towards the end of this year, initiating with gathering services and expanding to processing services from Q2 2025 onwards.
In a separate transaction, Kinetik has entered a binding agreement to sell its 16% equity stake in the 720km Gulf Coast Express pipeline (GCX) in the Permian Basin to an ArcLight Capital Partners affiliate.
The anticipated total sale proceeds amount to $540m in cash, which includes $30m in deferred cash payment. The deferred amount is contingent upon a final investment decision regarding a capacity expansion project.
Kinetik president and CEO Jamie Welch said: “Following the Durango Acquisition and the expected completion of Kings Landing, Kinetik will own and operate over 2.4 billion cubic feet per day of processing capacity, entirely in the Delaware Basin, and approximately 4,600 miles of pipelines across eight counties.
“Proceeds from the GCX Sale and the aggregate issuance of $450 million of Kinetik Class C shares, in two installments, will be reinvested into projects at a mid-single digit EBITDA multiple.”
