Tailwater Capital has agreed to sell Tall Oak Midstream Operating and its subsidiaries (collectively, Tall Oak Midstream III) to Summit Midstream in a cash and stock deal worth around $450m.
In this regard, the Dallas-based energy and environmental infrastructure private equity firm has entered into definitive agreements with Summit Midstream and its fully-owned subsidiary Summit Midstream Partners.
Tall Oak Midstream III is a gas gathering and processing system in the Arkoma Basin in central Oklahoma, US. The system is made up of two natural gas processing plants with capacities of 220 million cubic feet per day (MMcf/d) each along with nearly 393km of low-pressure natural gas gathering lines.
It also includes high-pressure natural gas gathering lines with a length of around 269km and 65,000 horsepower of field and plant compression.
The Tall Oak system’s gathering agreements include long-term, fee-based contracts that have a weighted average term of nearly 13 years. Its volume throughput is supported by acreage dedications, with an estimated acreage of 315,000 leased acres from its major customers.
The dedicated acreage is said to be spread over highly productive, rich gas regions within the Arkoma Basin, with producers mainly targeting the Woodford formation.
Tailwater Capital co-founder and managing partner Jason Downie said: “This transaction represents a unique opportunity to partner with the Summit organisation to support the long-term growth and value creation initiatives already underway at the Company.
“The Tall Oak assets are complementary to Summit’s existing gas portfolio, and we believe the Company is well positioned to drive even more value for shareholders over the coming years.”
Consideration for the deal includes a cash component of $155m, nearly 7.5 million shares of a combination of Summit Midstream Class B common stock and common units of the Summit Midstream Partners. This represents nearly 40% ownership in the pro forma company, and a contingent consideration of up to $25m in cash over certain measurement periods through 31 March 2026.
Summit Midstream president, CEO, and chairman Heath Deneke said: “We’re extremely excited about Tall Oak’s growth outlook and shifting Summit’s commodity exposure to a more equal weight of oil and natural gas-oriented drilling, particularly as we expect natural gas demand to grow considerably over the next decade.
“The Tall Oak system in the Arkoma Basin is well positioned, similar to our existing Barnett asset, to help satisfy that demand growth with access to the Gulf Coast, Mexico and key power generation markets.”
Subject to customary closing conditions, approval of shareholders, and regulatory approvals, the deal is anticipated to close in Q4 2024. Upon its completion, four directors appointed by Tailwater Capital will serve on the board of the pro forma Summit Midstream.
Earlier this year, Summit Midstream Partners signed an all-cash deal worth $625m to sell Summit Midstream Utica to a subsidiary of MPLX.
