MIDSTREAM NEWS

TSO ACQUIRES BAKKEN LOGISTICS ASSETS FOR DROP-DOWN

In early December 2015, Tesoro Logistics LP's (TLPP) parent and general partner TSO said it plans to acquire Great Northern Midstream LLC and its logistics assets in the Bakken and Williston basin to then drop down the assets to TLLP in 2016. Acquired assets include the BakkenLink crude oil pipeline, a gathering system, a rail loading facility and a storage facility in Fryburg, North Dakota. The Bakken assets are close to TLLP's High Plains Pipeline System and integration of the Great Northern Midstream assets into TLLP's existing assets will help supply TSO's West Coast refineries with advantaged crude oil and provide third-party producers additional market access, said Seaport Global Securities analysts.

ENLINK TO ACQUIRE TALL OAK SUBSIDIARIES FOR $1.55B

Tall Oak Midstream LLC and its equity partner EnCap Flatrock Midstream said that a subsidiary of EnLink Midstream Partners LP and EnLink Midstream LLC have signed definitive agreements to acquire subsidiaries of Tall Oak Midstream for approximately $1.55 billion. The subsidiary entities hold substantially all of Tall Oak's Oklahoma assets which include the STACK Natural Gas System, the STACK Crude Oil System and the CNOW Natural Gas System.

Under the terms of the definitive agreements, approximately 84% of the combined acquisition will be acquired by the Partnership (EnLink Midstream Partners LP), and the remainder will be acquired by the General Partner (EnLink Midstream LLC) in exchange for ENLC common units which will be issued at closing. The purchase price will be paid in installments, with the first installment of $1.05 billion paid at closing and the final installment of $500 million paid no later than the first anniversary of the closing date with the option to defer $250 million of the final installment up to 24 months following the closing date. The first payment will be funded primarily through issuance of $750 million in convertible preferred units and $250 million of ENLC common units to the sellers and the second installment will be funded with non-core asset sales, preferred equity issuances, or (less likely) addition common equity, noted Raymond James analysts.

Oklahoma City, OK-based Tall Oak was established in January 2014. The company's management team will continue to pursue new midstream opportunities across North America through Tall Oak Midstream II LLC.

STACK

Tall Oak's STACK systems serve multiple oil and gas producers targeting the play's liquids-rich, stacked pay zones in Blaine, Canadian, Kingfisher and Grady counties. The STACK Natural Gas System includes nearly 200 miles of gathering pipelines with an additional 75 miles under construction or in development, two compressor stations and the Chisholm Plant, and a cryogenic gas processing plant located in Kingfisher County. The plant was placed in service in October 2015 and has a current capacity of 100 MMcf/d. The facility is currently being expanded by an additional 200 MMcf/d, which is expected to be completed in 3Q16. The facility connects to the Panhandle Eastern Pipeline, OneOK Gas Transmission for residue gas and the OneOK NGL Pipeline.

Tall Oak announced development of the STACK Crude Oil System in May 2015. The initial crude oil system will consist of a storage and truck-unloading facility east of Okarche, OK, and a 20-mile pipeline that will provide connections to multiple downstream markets.

Tall Oak's CNOW Natural Gas System serves multiple producers targeting stacked pay zones in Creek, Logan, Lincoln, Noble, Payne and Pawnee counties. Assets include 175 miles of natural gas gathering pipeline and three compressor stations. An additional 50 miles of pipeline are under construction or in development. The CNOW System also includes the Battle Ridge Plant, a cryogenic gas processing plant located in Payne County. The plant has a current capacity of 75 MMcf/d and direct access to premium downstream markets, including Southern Star Central Gas Pipeline, Enable Gas Transmission for residue gas and OneOK NGL.A 42-mile, 16-inch high-pressure header pipeline is under construction to connect the two systems.

The transaction, which is expected to close in 1Q16, is subject to customary closing conditions, including applicable regulatory approvals and the completion of Devon Energy's acquisition of Felix Energy, which is expected to occur concurrently with the Tall Oak closing.

The deal "illustrates the unique benefits of the Devon/EnLink relationship," said Raymond James in a note following the announcement. "This transaction expands EnLink's reach into Oklahoma by diversifying the customer base and fits with EnLink's longer-term plans within the region (i.e., the multi-phase Oklahoma Express pipeline project and the development of a crude oil gathering system). Management expects the deal to be executed at ~7.5-8.0x projected consolidated adjusted EBITDA of ~$300 million by 2018, resulting in DCF accretion. EnLink expects to remain investment-grade, thanks in part to the deal's structure," they noted.

Citi is serving as sole financial adviser to Tall Oak. Paul Hastings LLP serves as legal counsel to Tall Oak Midstream. Thompson & Knight LLP represents EnCap Flatrock Midstream.

FITCH: MIXED OUTLOOKS FOR US MIDSTREAM SUBSECTORS, GIVEN PERSISTENT HEADWINDS

Commodity price weakness continues with no relief in sight in the near term, according to Fitch Ratings. Despite this, the credit ratings and sector outlooks for US pipeline and midstream assets are generally stable. However, Fitch remains negative on midstream services, particularly gathering and processing which has a negative rating and sector outlook.

Fitch's outlooks cover the crude oil and refined products pipelines, midstream services, master limited partnerships, and natural gas pipeline segments.

In the upcoming year, natural gas, crude oil and refined product pipelines should generate fairly stable cash flows given the lack of direct commodity price exposure. Given expectations for lower domestic crude production, crude pipeline volumes are likely to fall in the mid-single digits. Refined products pipelines are expected to have a modest uptick driven by demand for lower priced products such as gasoline. Natural gas pipelines should be insulated from production and price changes, as well, given their contract profiles, though re-contracting risk on underutilized systems remains a concern. Should commodity prices remain under pressure over a longer-term timeframe, Fitch would expect a pullback or delay in spending on new infrastructure projects.

For midstream services, continued low commodity prices, increased counterparty risk, potential volume declines, constricted capital market access and rising leverage could pressure ratings and Outlooks for midstream services issuers. Slower demand for midstream services will be driven by moderating NGL production growth. Fitch expects low NGL prices and falling demand to drive negative headwinds for growth in the midstream services segment.

Across all of the sectors, liquidity remains sufficient though reliance on revolver borrowings is expected in the near to medium term. Debt maturity schedules are manageable. Access to capital market access should remain sufficient though more costly, particularly for low-investment-grade and all high-yield issuers.

NAVITAS MIDSTREAM BUYS GATHERING, PROCESSING ASSETS FROM APACHE

Marking its second acquisition in the Midland Basin region since September, Navitas Midstream Partners has acquired natural gas gathering and processing assets serving Midland and Upton counties in Texas from a subsidiary of Apache Corp. for an undisclosed sum. The assets acquired include approximately 114 miles of low and high pressure natural gas gathering pipelines ranging in size from 2-inches to 12-inches in diameter and a cryogenic processing plant, which has capacity of approximately 30 MMcf/d. The acquisition was financed with equity from Warburg Pincus, Navitas' private equity sponsor.

KMI, BROOKFIELD TO ACQUIRE MYRIA HOLDINGS' MAJORITY INTEREST IN NGPL

Kinder Morgan Inc. and Brookfield Infrastructure Partners LP have a definitive agreement whereby they will jointly acquire, from Myria Holdings Inc., the 53% equity interest in Natural Gas Pipeline Co. of America LLC (NGPL) not already owned by them for a total purchase price of $242 million.

KMI will pay $136 million and increase its ownership interest from 20% to 50%, and Brookfield Infrastructure will pay $106 million and increase its ownership from 27% to 50%. The transaction values NGPL at a total enterprise value of $3.4 billion, inclusive of existing debt.

Fitch Ratings expects the acquisition to be neutral to Kinder Morgan Inc. (KMI; 'BBB-'/Stable Outlook) and believes the deal does not materially impact KMI's credit profile in the near term. The multiple being paid for the increased interest in NGPL is reasonable, with the transaction valuing the pipeline at roughly 10x 2016 EBITDA (inclusive of NGPL debt). Fitch does not expect its KMI base case credit metrics to change materially as a result of the transaction. Fitch continues to expect leverage at KMI on a consolidated basis will be high, above KMI's targeted range of between 5.0x to 5.5x debt/EBITDA, for the next several years as KMI works through a high growth spending backlog. However, Fitch expects near-term leverage to be below 6.0x (5.7x for 2016) and improve to the targeted range as projects are completed.

Fitch would expect KMI to be supportive of the pipeline and help fund any growth capital needs provided it is not deleterious to its own credit profile. Failure to manage leverage down to the targeted 5.0x to 5.5x on a sustained basis would likely lead to a negative ratings action.

The additional investment in highly leveraged NGPL does not resolve concerns around NGPL's stressed balance sheet or challenged operating environment. There are signs that the financial impact of compressed natural gas basis conditions on NGPL has waned. All of NGPL's higher rate contracts have rolled over at this point and management does not expect any material downside to revenue going forward.

RICE MIDSTREAM HOLDINGS SET FOR $500M INVESTMENT

Rice Energy Inc. has agreed to non-binding terms with an energy infrastructure fund to invest up to $500 million in preferred equity in Rice Midstream Holdings LLC (RMH), a wholly owned subsidiary of Rice, and common equity in a new wholly owned subsidiary of RMH, to be called GP Holdings, which will be formed to hold the common units, subordinated units and incentive distribution rights in Rice Midstream Partners LP currently held by RMH.

At closing, Rice Energy plans to utilize $375 million, of which it intends to use a portion to repay all outstanding borrowings under RMH's revolving credit facility, and the remainder to fund Rice's 2016 development of its core Marcellus and Utica shale wells.

Analysts with Seaport Global Securities said the deal "creatively utilizes the often overlooked value of RICE's midstream assets not held in RMP to ensure that RICE's balance sheet stays in check in FY16 (deal should plug any E&P cash flow outspend)."