A Tetra Technologies Inc. partnership on Monday expanded its grip on the U.S. natural gas compressor industry with an $825 million agreement to buy Compressor Systems Inc. (CSI).
Tetra, headquartered near Houston in The Woodlands, said majority-owned Compressco Partners LP would buy all of the outstanding shares of CSI, increasing its total horsepower offering to more than 1.045 million hp from 187,000. Compressco also would be able to use an expanded range of compressor packages for customers, from 20 hp units to 2,370.
"This acquisition is the next step in a series of strategic moves to position Tetra to generate improved and more predictable earnings and cash flows," said CEO Stuart Brightman. "We expect to create synergies of between $5 million and $10 million on an annualized basis, beginning in 2015."
The combined organization is to be led by CSI President Tim Knox. Compressco's James Rounsavall would serve as CFO, with Ron Foster as chief marketing officer.
Midland, TX-based CSI was founded in 1971 and is the largest privately held gas domestic compression provider in the United States. It fabricates, sells and maintains gas compressors, and provides services that cover the entire production and transportation cycle. From the end of March 2013 to the end of March 2014, CSI's aggregate revenues were $311 million, with earnings of $82.3 million.
Exterran Partners LP, a pure-play natural gas compression company, is the largest U.S. provider with an estimated 3.3 million hp in operation. Competitors also include USA Compression Partners LLC, another pure-play that is owned by Riverstone/Carlyle Global Energy and Power Funds (see Shale Daily, Dec. 29, 2010). Several midstreamers also provide gas compression services, including Access Midstream Partners LP and Regency Energy Partners LP.
Tetra's focus is on completion fluids and associated products, as well as water management, post-fracturing flowback, well testing and some offshore services.
"To meet the strong demand for compression services, following the acquisition, we expect to grow capital expenditures to between $90 million and $100 million in 2015, which will provide incremental revenues and is expected to facilitate additional increases in cash distributions," said Brightman.
Once the transaction is completed, Tetra is expected to reduce its ownership in Compressco to about 46%, but it would maintain a 100% ownership of the general partner and would consolidate the results in its financial statements.