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American Midstream's Purchase of Costar Bolsters Onshore NatGas, Oil Services

Adding to a string of acquisitions over the past year, Denver-based American Midstream Partners LP on Tuesday completed a $470 million deal to acquire Dallas-based Costar Midstream LLC, boosting its natural gas gathering abilities in the Permian Basin and in East Texas, and giving it leverage in the oil-rich Bakken Shale.

The acquisition from Energy Spectrum Partners VI LP and Costar management was funded with $272 million in debt and 6.9 million common units issued directly to the sellers. The deal came one day after the mega midstream merger announcement by Targa Resources Corp. and Atlas Energy LP (see Daily GPI, Oct. 13).

"The Costar deal is consistent with our growth strategy to pursue third-party acquisitions that enhance our current footprint of natural gas and crude oil midstream assets," said CEO Steve Bergstrom. "With Costar's recently completed Permian gas gathering and processing assets and the Bakken crude oil system that will be online shortly, coupled with the partnership's existing natural gas and crude oil assets in the Eagle Ford, American Midstream is now operating in a majority of the key energy resource plays in the U.S."

American Midstream expects to invest up to $80 million over the next 12-18 months to complete several projects planned in Costar's three regions.

In East Texas, Costar's Longview, TX, natural gas gathering and processing services in Gregg County have 55 MMcf/d of cryogenic processing capacity and natural gas liquid (NGL) fractionation through an 8,500 b/d fractionator and off-spec condensate treating services. Chapel Hill, 20 miles west in Smith County, TX, is a 20 MMcf/d cryogenic processor and a 2,000 b/d fractionator. A manifest rail facility also is being built on a 400-acre site adjacent to Longview that would increase Costar’s access to third-party upstream supply and downstream markets. The rail facility is expected to be operational in the second half of 2015.

The Yellow Rose gas system in the Permian Basin is a 40 MMcf/d gathering and cryogenic processing system in Martin County, TX, that began operating in September. It is supported by a long-term dedication of more than 30,000 acres. In addition, Costar is constructing an off-spec condensate treating plant in the Permian that is expected to be operational in early 2016.

A Bakken oil gathering system is under construction in McKenzie County, ND and should begin initial operations by early 2015. The pipeline is to have operating capacity of more than 40,000 b/d, with a downstream connection to the Tesoro Logistics pipeline and the ability to accept volumes via truck. The gathering system is supported by a long-term dedication of 24,000 acres from the anchor producer customer.

"As we look forward, we are focused on integrating recently acquired assets, continuing to execute our strategic development projects in the Eagle Ford, and completing organic growth projects, including the expansion of Blackwater Harvey terminal," said Bergstrom. Blackwater Midstream Holdings LLC was acquired in late 2013 (see Shale Daily, Dec. 12, 2013).

American Midstream delivered strong financial results during 2Q2014 on improved gross margins, up 21% year/year, in part on a string of acquisitions both onshore and offshore (see Daily GPI, Aug. 13). During the summer, it added midstream operations that serve the onshore and offshore Eastern Gulf of Mexico (GOM) in a $115 million deal with DCP Midstream LLC (see Daily GPI, July 17). The system complemented the High Point system in Southeast Louisiana.

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