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EnLink's Tall Oak Takeover Expands STACK, CNOW Business

Devon Energy Corp.’s majority owned EnLink Midstream is expanding its reach in Oklahoma with a $1.55 billion deal to acquire Tall Oak Midstream LLC, considered a key element to Devon's growth in the state's stacked reservoirs.

Tall Oak serves producers working in the STACK, otherwise known as the Sooner Trend of the Anadarko (Basin) in Canadian and Kingfisher counties, and the Central Northern Oklahoma Woodford (CNOW) play. Its fixed-fee contracts with acreage dedications have remaining terms averaging 15 years. Dallas-based EnLink Midstream Partners LP and EnLink Midstream LLC agreed to pay Tall Oak $1.05 billion at closing with the remaining amount paid out over one or two years.

The deal is considered paramount to Devon's agreement Monday to acquire Oklahoma producer Felix Energy LLC, which is Tall Oak's largest customer (see related story). Devon agreed to provide EnLink with five-year minimum volume commitments for gathering and processing the dedicated Felix acreage.

"This unique and highly attractive transaction underscores the strength and synergies of EnLink's partnership with Devon, demonstrating the value creation our relationship brings," EnLink CEO Barry E. Davis said. "The acquisition is consistent with our growth strategy and will provide EnLink with an expanded position in one of the best plays in the nation, the liquids-rich STACK play, as well as expand our Oklahoma footprint and diversify our customer base. These assets represent attractive gathering and processing opportunities that are anchored by long-term, fee-based contracts that provide stable cash flows."

Tall Oak's decision to allow EnLink additional time to pay for the system allows the midstreamer to maintain "ample liquidity and flexibility to continue executing our growth strategy," Davis added.

Devon and EnLink executed the acquisitions at the same time, Devon CEO Dave Hager noted. "The oil rich nature of this expanded STACK position gives Devon a significant inventory of development opportunities and aligns well with EnLink's growth strategy," he said.

The acquisitive EnLink, whose assets are across the U.S. onshore, now has more than 9,200 miles of gathering and transportation pipelines, 17 processing plants with 3.6 Bcf/d of processing capacity and seven fractionators with 280,000 b/d of fractionation capacity (see Shale DailyNov. 17Oct. 21, 2013).

Tall Oak's assets complement EnLink's existing position in the Cana-Woodford formation. The STACK is one of North America’s premier resource plays and includes two main stacked formations, the Meramec and the Woodford Shale. Producers, including Devon, expect to place multiple horizontal wellbores in each section of the Meramec and Woodford Shale to develop both formations.

"The combined Tall Oak and EnLink assets effectively link the STACK, Cana-Woodford and CNOW plays and creates a franchise position for EnLink in Oklahoma," Davis noted.

EnLink has the opportunity to build out the Tall Oak systems by connecting its existing Cana assets to the Tall Oak assets to create a "super-system in the heart of the STACK play." Longer term plans include potentially connecting EnLink's Oklahoma assets to its North Texas assets through a multi-phase pipeline development called the Oklahoma Express.

"Tall Oak also holds crude oil dedications from major customers on its gas gathering and processing system including Felix," Davis said. "EnLink expects to work closely with Devon and other STACK customers to develop a mutually-beneficial crude oil gathering system."

The Tall Oak acquisition also would  further diversify EnLink's producer relationships through contracts with key producers, which include Felix, PayRock Energy, American Energy-Woodford LLC and other major customers in the region (see Shale DailyNov. 12, 2014). Most of these customers "are focused on development of the acreage underlying the Tall Oak systems."Tall Oak’s assets are strategically located in the core areas of the STACK and CNOW plays. The assets include two gathering and processing systems and will include a rich gas pipeline currently under construction that will connect the two systems.

With the Tall Oak purchase, EnLink is tacking on these assets:

  • Chisholm Plant, a cryogenic gas processing plant with a current capacity of 100 MMcf/d and a 200 MMcf/d expansion underway that is set to be completed in 3Q2016. The plant, which could be expanded by an additional 400 MMcf/d, is connected to a 200-mile, low and high-pressure gathering system with compression facilities.
  • Battle Ridge Plant, which provides EnLink with an entrance into the CNOW, is a cryogenic gas processing plant with a current capacity of 75 MMcf/d. The plant is connected to a 175-mile, low and high-pressure gathering system that is being expanded; and a
  • 42-mile, 16-inch diameter high-pressure header pipeline with total capacity of 150 MMcf/d that is scheduled to be in service by year's end to connect the Chisholm and Battle Ridge systems.

Following the payment of $1.05 at closing to Tall Oak, the final installment of $500 million is to be paid by the first anniversary with the option to defer $250 million up to two years. EnLink would fund the first installment by issuing $750 million of convertible preferred units to private equity firm TPG, and funds managed by the merchant banking division of Goldman Sachs, and via a revolving credit facility of $50 million. The second installment would be paid by selling some assets or possibly issuing preferred equity.

In connection with issuing equity issuance, the board of EnLink's general partner would expand to 11 from nine, with Devon and TPG each having the right to appoint one new member.  The transaction is scheduled to be completed by the end of March, subject to Devon's successful acquisition of Felix.

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