MIDSTREAM NEWS
Enbridge, Spectra Energy to combine
Enbridge Inc. and Spectra Energy Corp. have agreed to merge in a stock-for-stock merger transaction, which values Spectra Energy common stock at approximately C$37 billion (US$28 billion), based on the closing price of Enbridge's common shares on September 2, 2016. The combination will create the largest energy infrastructure company in North America and one of the largest globally based on a pro-forma enterprise value of approximately C$165 billion (US$127 billion).
Spectra Energy shareholders will receive 0.984 shares of the combined company for each share of Spectra Energy common stock they own. The consideration to be received by Spectra Energy shareholders is valued at US$40.33 per Spectra Energy share, based on the closing price of Enbridge common shares on September 2, 2016, representing an approximate 11.5% premium to the closing price of Spectra Energy common stock on September 2, 2016. Upon completion, Enbridge shareholders are expected to own approximately 57% of the combined company and Spectra Energy shareholders are expected to own approximately 43%. The combined company will be called Enbridge Inc.
Together, Enbridge and Spectra Energy bring C$26 billion (US$20 billion) in secured capital and a C$48 billion (US$37 billion) inventory of probability weighted projects in development.
The combined company's C$74 billion (US$57 billion) organic growth platform is expected to support a highly visible dividend growth rate of 10%-12% through 2024, including an anticipated aggregate increase of 15% in 2017 post closing, while maintaining a payout of 50%-60% of available cash flow from operations.
The combination is expected to achieve annual run-rate synergies of C$540 million (US$415 million), the majority of which should be achieved in the latter part of 2018. In addition, approximately C$260 million (US$200 million) of tax savings can be achieved through utilization of tax losses commencing in 2019.
Upon closing, Al Monaco will continue to serve as president and CEO of the combined company. Greg Ebel, president and CEO of Spectra Energy will serve as non-executive chairman of Enbridge's Board of Directors. John Whelen will serve as executive vice president and CFO.
Enbridge's Board of Directors is expected to have a total of 13 directors consisting of eight members designated by Enbridge, including Monaco, and 5 members designated by Spectra Energy, including Ebel.
The headquarters of the combined company will be in Calgary, Alberta. Houston, Texas will be the combined company's gas pipelines business unit center; Edmonton, Alberta will remain the business unit center for liquids pipelines, with gas distribution continuing to be based in Ontario.
Enbridge expects the transaction to be neutral to its 12% to 14% secured ACFFO per share CAGR guidance through the 2014-2019 time period, and additive to its growth beyond that timeframe. Enbridge expects it will divest of approximately $2 billion of non-core assets over the next 12 months to provide additional financial flexibility.
At closing, Enbridge Energy Partners, LP and Spectra Energy Partners, LP are expected to continue to be publicly traded partnerships headquartered in Houston, Texas. Enbridge Income Fund Holdings will remain a publicly traded corporation headquartered in Calgary, Alberta.
Credit Suisse Securities (Canada) Inc. acted as Lead Financial Advisor and delivered an opinion to Enbridge's Board of Directors. RBC Capital Markets also acted as financial advisor to Enbridge and delivered an opinion to Enbridge's Board of Directors. Sullivan & Cromwell LLP and McCarthy Tétrault LLP were legal advisors to Enbridge.
BMO Capital Markets and Citi acted as Joint Lead Financial Advisors to Spectra Energy's Board of Directors. Wachtell, Lipton, Rosen & Katz and Goodmans LLP acted as legal advisors to Spectra Energy and Skadden, Arps, Slate, Meagher & Flom LLP acted as tax counsel.
Lucid Energy Group II acquires Agave Energy
Subsidiaries of Lucid Energy Group II LLC closed on the purchase of certain assets of Agave Energy Co. and the acquisition of all of the outstanding stock of Agave Energy Holdings Inc. Agave owns and operates natural gas gathering and processing assets in the Delaware Basin of southeastern New Mexico and the Powder River Basin of eastern Wyoming.
Lucid II was formed in late 2015 by the team that leads, Lucid Energy Group LLC (Lucid I). Lucid I operates a gathering and processing footprint in the Midland Basin. As a result of this transaction, the combined Lucid companies are the largest privately held natural gas processor working in the Permian Basin, with 660 million cubic feet of natural gas processing capacity and more than 3,300 miles of pipeline in operation. Lucid I and Lucid II are supported by equity capital commitments of over $850 million in the aggregate from EnCap Flatrock Midstream.
Agave's assets are located primarily in Eddy and Lea counties in New Mexico and include 280 million cubic feet of natural gas processing capacity, more than 1,300 miles of gas gathering pipeline and over 60,000 horsepower of compression. Lucid II plans to expand Agave's pipeline footprint in the Delaware Basin by adding new infrastructure in the near term, including a new 200 MMcf/d cryogenic processing plant at Agave's Red Hills natural gas processing complex in Lea County. Construction of the new plant has begun, and Lucid expects to commission the new plant in mid-2017. All of Agave's approximately 160 employees will remain with the company at closing.
Lucid II was represented by Locke Lord LLP and Jefferies served as its financial advisor. Agave was represented by Latham & Watkins LLP and Butler Snow LLP.
DW: LNG Investment to Total $284B
The LNG industry is undergoing a dramatic transformation. North American activity (the majority of which is committed spend) is driving a return to growth in global capital expenditure. A wave of new LNG carrier newbuilds will also be required to support a huge increase in traded base-load LNG volumes.
Douglas-Westwood's new World LNG Market Forecast 2017-2021 indicates global LNG expenditure will total $284 billion (bn) between 2017 and 2021, representing a 50% growth compared with the preceding five-year period.
Report author, Mark Adeosun, commented, "Liquefaction terminals will remain the principal driver of expenditure with spend in the segment totaling $192 billion. This will subsequently lead to a 42% increase in liquefaction capacity by the end of the forecast period. Despite challenging times for shipyards, with only four LNG carriers ordered in 2016 (YTD) - unit orders are expected to bounce back in the near-term. Over 150 additional carriers yet to be ordered are likely to be required for additional export capacity coming onstream in the latter years of the forecast. Overall we expect expenditure on LNG carriers will represent 19% of global expenditure.
"As the final set of Australian LNG projects start operating in 2017, global LNG expenditure will be concentrated in North America. This regional swing in investment will result in the United States (US) & Canada accounting for 17% of global liquefaction capacity by 2021 - with capex totaling $105bn, 36% of global expenditure over the forecast period. Of the six liquefaction terminals in the US, four of the facilities are currently under construction, with additional trains to be added before the end of the period. Beyond the forecast, some export terminals currently in the planning and approval stages will continue to support expenditure. We have, however, taken a conservative view on additional projects, given the current economic climate, and expect many of the early-stage projects not to progress past the initial planning/consent phase.
"Over the long-term, LNG demand will continue to grow, as countries seek to diversify their energy supply. It is expected that delays in committing to new nuclear capacity and limitations of renewable technology in base-load applications will support continued newbuild of combined-cycle gas power plants. This, in addition to declining local production in some key consumer nations, will be a compelling driver for continued investment in these capital intensive projects."
Southern Company, Kinder Morgan Finalize SNG Pipeline Venture
Southern Company and Kinder Morgan Inc. closed on their natural gas pipeline venture through Southern Company's acquisition of a 50% equity interest in the Southern Natural Gas (SNG) pipeline system through a subsidiary of Southern Company Gas. Kinder Morgan will continue to operate the system.
SNG is an approximately 7,000-mile pipeline system connecting natural gas supply basins in Texas, Louisiana, Mississippi, and Alabama to markets in Louisiana, Mississippi, Alabama, Florida, Georgia, South Carolina and Tennessee. SNG is a principal transporter of natural gas to Alabama, Georgia, and South Carolina.
Kinder Morgan plans to use all of the proceeds from this transaction to reduce debt at Kinder Morgan.
Jones Day, Gibson Dunn & Crutcher LLP, Troutman Sanders LLP and Balch & Bingham LLP are serving as legal counsel to Southern Company, and Bracewell LLP and Weil, Gotshal & Manges LLP are serving as legal counsel to Kinder Morgan.
EVX Midstream to build Eagle Ford gathering system
EVX Midstream Partners LLC has entered into a definitive agreement to build a crude oil gathering system in the Eagle Ford oil window. The gathering system (EVX South Texas Crude) will be underpinned by a fee-based, 10-year agreement that includes a substantial acreage dedication and existing crude oil production in Frio, La Salle and McMullen Counties, Texas. EVX South Texas Crude facilities will serve many of the same producers as EVX South Texas Water and ultimately create higher netbacks for EVX's customers.
ARB Midstream acquires Platte River Gathering System
ARB Midstream LLC has acquired a controlling interest in the Platte River Gathering System (PRG) from Rimrock Midstream Holdings LLC.
The PRG system provides gathering for crude oil production in the Denver-Julesburg Basin. The system is backed by multiple long-term producer commitments, and started transporting crude oil in April 2016. PRG is capable of moving up to 157,000 b/d and includes over 40 miles of crude oil gathering lines, truck unloading at the Lucerne Hub, and planned storage capacity of up to 600,000 barrels. PRG delivers to the Grand Mesa Pipeline, which delivers barrels to Cushing, Oklahoma.
The company has appointed Pat McMurry as the senior vice president of gathering and transportation. McMurry joined ARB after overseeing the development of PRG for Rimrock. McMurry has over 40 years of experience in midstream construction and business development.