MIDSTREAM NEWS

Associated gas falling with oil output

"Since the recent peak in April 2015 of 9.5 MMb/d, oil supply has declined by 615 Mb/d, or 6%, to 8.9 MMb/d in March 2016," said Jefferies analysts in a note April 28, projecting "further meaningful declines (another ~500+ Mb/d) through the balance of 2016."

"Our model implies total declines of 1.1 MMb/d from April, 2015 to end-2016, including a 740 Mb/d fall for exit-2016 vs. exit-2015." Largely, the decline in oil production has come from fields that also produce significant 'associated' gas (Eagle Ford, Anadarko basin, Bakken, Permian, DJ), the analysts said.

"These fields in aggregate are down ~9% YoY and have lost ~1.8 Bcf/d from peak (~21 Bcf/d). Our basin model predicts another ~1 Bcf/d+ decline from now until year-end."

ArcLight closes acquisition of interest in CAGS facility

ArcLight Capital Partners LLC affiliate Amphora Canada Gas Storage ULC has completed the purchase of Chevron Alberta Gas Storage ULC from Chevron Canada Properties Ltd. CAGS owns a 43% non-operated interest in Alberta Hub Gas Storage. Iberdrola Canada Energy Services Ltd. owns the remaining interest and operates the facility. The facility is a 42.7 Bcf depleted-reservoir natural gas storage facility located 80 miles west of Edmonton, Alberta. It is connected to TransCanada's NOVA Gas Transmission Ltd. system, which provides access to local Alberta markets and to AECO Hub, a North American natural gas trading center with connectivity to the US West Coast, Midwest, and Northeast markets.

Sage Midstream receives $500M equity commitment from Stonepeak

Sage Midstream Ventures LLC has received an equity commitment of up to $500 million from Stonepeak Infrastructure Partners, a private equity firm focused on infrastructure investments in the energy, power & renewables, transportation, utilities, water and communications sectors. Sage Midstream is a privately held company with a focus on acquiring and developing midstream energy infrastructure. Sage will pursue acquisition and development opportunities across the hydrocarbon value chain, including natural gas, natural gas liquids, crude oil, petrochemicals and refined products, with a broad focus on transportation, processing, fractionation, storage and marketing services. Sidley Austin LLP served as legal counsel for Stonepeak. Willkie Farr & Gallagher LLP served as Sage management's counsel.

Spectra to purchase common units from Spectra Energy Partners

Spectra Energy Corp. and Spectra Energy Partners LP have agreed for Spectra Energy Corp. to acquire approximately 9.1 million common units representing limited partner interests in Spectra Energy Partners at a price of $45.96 per unit in a private placement. In addition, Spectra Energy Corp. will purchase up to an additional 1.4 million common units in the event that additional shares of its common stock are issued pursuant to the 25-day option granted to the underwriter in Spectra Energy Corp.'s public offering of common stock. Spectra Energy Corp. is the parent company of the general partner of Spectra Energy Partners.

When the initial private placement is complete, Spectra Energy Partners will have approximately 296 million common units outstanding. The Spectra Energy Corp. ownership interest in Spectra Energy Partners after this transaction will be 78%.

This transaction is being financed with the Spectra Energy common equity issuance.

"Given both entities' ability to use the ATM and short-term debt to fund budgeted organic growth spending, the transactions were not technically "necessary," but instead importantly demonstrate Spectra's ability to positively utilize the traditional GP/LP MLP structure. This is importantly differentiating, given the structure has come "under fire" for other midstream peers during the commodity price down-cycle. Spectra's prudent historical and expected future use of the MLP model offers it this flexibility. More than just "sponsor support" of the LP, SE and SEP benefit from having multiple financing currencies to carry the load on a combined ~$3.0/~$1.9 billion 2016/2017 expansion capital program," Raymond James analysts offered in an April 5 note following the announcement.

Southcross Holdings emerges from Chapter 11 bankruptcy

Southcross Holdings LP has consummated its pre-packaged plan of reorganization (POR) and emerged from bankruptcy protection. Holdings commenced voluntary cases under chapter 11 of the US Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas on March 27, 2016. The bankruptcy court confirmed the POR on April 11, 2016. Among other things, the POR eliminated nearly $700 million of funded debt and preferred equity obligations of holdings, and provided for a new equity investment from certain of its existing equity holders. Southcross Holdings LP, through its subsidiary Southcross Holdings Borrower LP, owns 100% of Southcross Energy Partners GP LLC, the general partner of Southcross, as well as a portion of Southcross' common units, and all of Southcross' subordinated units and Class B convertible units. Holdings also owns natural gas gathering and treating assets as well as NGL pipelines and fractionation facilities in South Texas.

American Midstream begins Longview rail facility operations

American Midstream Partners LP has begun operations at its East Texas rail facility, allowing for receipt and delivery of natural gas liquids (NGLs) and condensate by rail to the Longview processing plant, located in the Cotton Valley shale play in Gregg County, Texas. The facility has capability for the receipt and delivery of up to 4,500 barrels per day of on-spec and off-spec NGLs, including purity products and condensate, with similar capabilities for rail-to-truck transloading. Future plans include additional receipt and delivery capabilities and sufficient track on the 400-acre site for unit trains.

The East Texas rail facility is adjacent to American Midstream's Longview operations, which include two cryogenic processing plants; a fractionation unit; a stabilization unit, product storage tanks; NGL sales pipelines; and a two-bay, semi-automated truck rack equipped to receive on-spec and off-spec NGLs and condensate. The facility is also located near several crude oil and refined products terminals.

Sempra to sell stake in Rockies Express Pipeline

Sempra US Gas & Power, a unit of Sempra Energy, has entered into a purchase-and-sale agreement with a subsidiary of Tallgrass Development LP to sell Sempra US Gas & Power's 25% interest in the Rockies Express Pipeline (REX) for $440 million in cash.

Sempra Energy expects the transaction to close in the second quarter and result in an after-tax loss of approximately $27 million.

Additionally, Sempra US Gas & Power intends to permanently release the remaining uncontracted capacity that it holds on REX that it had been releasing on an interim basis. The company expects the release to result in a charge to earnings of between $100 million and $120 million during the second quarter 2016, accelerating losses that would otherwise be realized over the contract term, which extends through November 2019. It is expected that the $27 million after-tax loss from the sale, as well as the loss resulting from the permanent release of capacity, will be excluded from Sempra Energy's adjusted 2016 earnings guidance.

Rockies Express Pipeline LLC is a joint venture of: a subsidiary of Tallgrass Development LP (50% share); Sempra US Gas & Power (25% share); and a subsidiary of Phillips 66 (25% share). A wholly owned subsidiary of Tallgrass Development LP operates the pipeline.

Crestwood enters Barnett agreement with BlueStone

Crestwood Equity Partners LP has entered into new, long-term commercial agreements with BlueStone Natural Resources II LLC to gather and process natural gas across its Alliance, Lake Arlington, and Cowtown systems in the Barnett shale play.

Under terms of the agreement, Crestwood will provide services to BlueStone for a period of 10 years under a fixed-fee and percent of proceeds fee structure. As part of the agreement, BlueStone has provided production assurance to Crestwood whereby, across all systems, BlueStone will return currently shut-in wells to production by July 1 and will not shut-in or choke back production for economic purposes through the end of 2018.

On April 6, BlueStone closed the acquisition of Quicksilver Resources Inc.'s Barnett shale assets. In connection with the closing, Quicksilver withdrew its motion to reject Crestwood's legacy gathering agreements relating to its Barnett shale assets.

BlueStone, formed in 2012, specializes in the development of oil and gas properties in the South Texas and Barnett shale plays and is sponsored by Natural Gas Partners. BlueStone is headquartered in Tulsa, Oklahoma.

Rangeland begins STEPS development

Rangeland Energy has initiated development of the South Texas Energy Products System (STEPS), an integrated hydrocarbon logistics system that will receive and store refined products, liquefied petroleum gas (LPG), and other hydrocarbons at a new terminal hub located in Corpus Christi, Texas, and transport them to terminals primarily located in Mexico. During the initial phase of the project, refined products and LPG will be received in the Corpus Christi terminal and then shipped to inland terminals in Mexico. In subsequent phases, marine facilities in Corpus Christi will be added to the system, along with the infrastructure to accommodate additional commodities including crude oil, condensate, and fuel oil.

Staple Street Capital acquires Mid-States Supply

An affiliate of Staple Street Capital, a middle market private equity firm, has acquired substantially all of the assets of Mid-States Supply Company. Mid-States is a distributor of industrial valves, pipe, automation products, fittings, steam specialty items and controls. The Kansas City, MO-based company provides its customers with a variety of value added fabrication and services.

The acquisition was effectuated through a stalking horse bid by an affiliate of Staple Street Capital in a Chapter 11 reorganization. Kirkland & Ellis served as legal advisor to Staple Street Capital. SSG Capital Advisors and Frontier served as investment banker in the transaction. Spencer Fane and Winter Harbor served as legal and restructuring advisors, respectively, to the seller.

Staple Street Capital is currently investing out of a $265 million private equity fund and typically seeks to invest $15 million - $75 million of equity per transaction.

BRIEFS Midstream space 1Q15 earnings preview

In an April 18 market report covering MLPs and the midstream sector, Deutsche Bank said sentiment is "fairly positive" heading into 1Q16 earnings. "The midstream space has recovered strongly from the 1Q16 lows, helped not only by the macro crude rally but also by: equity raises shoring up producers, improving energy debt markets, midstream spending rationalizations, and notable sponsor support for some names. Sentiment is thus fairly positive headed into 1Q16 earnings, which leaves us wondering whether our space will continue to mirror the energy rally or start to bifurcate on negative impacts from volume declines? Top picks: EQM, MPLX, ETP, EPD."

INGAA releases midstream infrastructure study

Mid-April, The Interstate Natural Gas Association of America (INGAA) released its North American Midstream Infrastructure Report. In it, the trade organization forecast base case midstream capex spend of $546 billion through 2035. Said Deutsche Bank after the report's release, "We view the report as an incremental positive, as the new capex projections came in above 2014's low growth case scenario of ~$465 billion."