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Western Gas Partners Buying Nuevo Midstream for $1.5B

Anadarko Petroleum Corp.-formed master limited partnership Western Gas Partners LP is buying Delaware Basin gas gatherer and processor Nuevo Midstream LLC for $1.5 billion. It’s the largest acquisition made by the partnership to date, according to management.

Western Gas Partners CEO Don Sinclair said the assets "are extremely valuable" to the company because of their location and the significant acreage position and development plans of Anadarko in the area. "The Nuevo management team has done an excellent job in utilizing their first-mover advantage to build a gathering and processing system that has over 150,000 dedicated acres plus volumetric commitments from high-quality producers," Sinclair said. The Delaware is a sub-basin of the Permian Basin.

The Nuevo assets include a 300 MMcf/d cryogenic processing complex with an additional 400 MMcf/d of processing capacity that is scheduled to be in service in 2015; 275 miles of gathering pipeline; 1,800 gpm of amine treating capacity and four compressor stations. The assets serve production from Reeves, Loving and Culberson Counties, TX, and Eddy and Lea Counties, NM.

"We are buying an early stage asset that we believe will deliver significant growth as the basin continues to develop," Sinclair said. "Both the current robust level of drilling activity and Anadarko's recent success in the area fuel our optimism regarding the further potential of the Delaware Basin, which has quickly become one of the most prolific resource plays in North America."

More than 70% of Nuevo's gross margin is fee-based, Western Gas Partners said. After the acquisition, more than 95% of the partnership's consolidated gross margin will be either fee-based or covered under its fixed-price agreements with Anadarko, it said.

The price represents a multiple of 8.5 times the assets' forecasted 2016 earnings before interest, taxes, depreciation and amortization, Sinclair said.

Western Gas Partners will offer a 50% stake in Nuevo to a third party that has a joint venture agreement with Anadarko; however, Western said it can go it alone if the third party declines. The deal is expected to close during the fourth quarter.

Formed in April 2011 with an initial $65 million equity commitment from EnCap Flatrock Midstream and management, Nuevo is a pure-play midstream company focused on developing and operating gas gathering, compression, processing, treating, transportation and marketing services to oil and gas producers in the Delaware Basin. Equity commitments to Nuevo ultimately reached more than $300 million from a group of investors led by EFM Funds I and II, management and Wells Fargo Energy Capital.

Nuevo's operations began in August 2011 when the company recommissioned a small refrigerated processing plant near Orla, TX. "Our strategy was to enter the Delaware Basin early, execute quickly to get sufficient infrastructure in place ahead of drilling schedules, and continue building on our first-mover advantage," said Nuevo CEO Jay Lendrum.

Nuevo's gathering and processing system is supported by long-term acreage dedications of about 150,000 acres and volume commitments from 47 producers operating in an area with multiple, stacked pay zones. "Many of Nuevo's producer customers are blue chip shale developers who have substantial drilling and development programs on the dedicated acreage and have identified the Delaware Basin as a significant driver of future production growth," Nuevo said.

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