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American Midstream’s Friendly Tie-Up with JP Energy to Combine Onshore, Offshore NatGas-Heavy Enterprise

American Midstream Partners LP agreed Monday to merge with JP Energy Partners LP in a unit-for-unit transaction valued at $2 billion, which would create an enterprise with natural gas and oil pipelines and processing capacity stretching from the deepwater Gulf of Mexico (GOM) into the Permian Basin and through the Eagle Ford and Bakken shales.

Houston-based American Midstream would provide the bulk of the assets and retain the name and headquarters. Once completed, the company would control more than 3,100 miles of gathering and transportation pipeline, 2.5 Bcf/d-plus of transportation capacity, six processing plants with 400 MMcf/d and three fractionation facilities with natural gas liquids (NGL) capacity of 20,000 b/d.

The entity also would control a 13.9% stake in an offshore floating production system (FPS) in the deepwater GOM, as well as shallow water assets offshore Louisiana.

By rolling in JP Energy's assets, the tie-up also would create the third largest wholesale propane business in the United States. Unitholders are expected to benefit from ArcLight Capital Partners LLC, which sponsors both companies.

"The merger elevates and reshapes our two businesses into a new platform that we expect will allow for higher growth, new business opportunities and a stronger financial position than either company could achieve separately," said American Midstream CEO Lynn L. Bourdon III, who would oversee the combined enterprise. "This transformational combination is the next logical step in expanding services from the wellhead to the end-user market.

"We will begin to experience the impact of our value chain growth strategy by offering customers a more competitive suite of services that enables us to capture incremental fee opportunities that maximize returns to unitholders."

American Midstream, which recently moved its headquarters from Denver, was formed in August 2009, and today operates more than 3,000 miles of gas pipelines that gather and transport 1 Bcf/d-plus. It also operates 1.7 million bbl of above-ground natural gas liquids (NGL) storage capacity. The portfolio includes 12 gathering systems, five processing facilities, three fractionation facilities, three interstate pipelines, five intrastate pipelines, one oil pipeline and four marine terminal sites.

Earlier this year American Midstream paid $225 million for a batch of gassy pipeline systems, including stakes in the Destin system, which primarily transport production from the eastern GOM (see Daily GPIApril 26). That deal included interests in the Tri-States and Wilprise pipes, which carry NGLs. In addition, ArcLight sold an additional 1% interest in Delta House, a semi-submersible FPS in Mississippi Canyon Block 254, giving the partnership its 13.9% stake.

American Midstream in the transaction last April also acquired a majority stake from Chevron Corp. in the Henry Gas Gathering System and in other gas, crude and saltwater onshore and offshore pipelines in the GOM. The Henry system offers multiple deliveries into the Fort Henry/Henry Hub gas complex in Louisiana.

American Midstream also owns a half-stake in an NGL processing plant in southern Louisiana, a 67% interest in an offshore oil pipeline and a 46% interest in Mesquite, an off-spec condensate fractionation project in the Permian Basin (see Daily GPIOct. 14, 2014).

One of the biggest projects now underway by American Midstream is building a replacement pipeline for the existing 1920s Midla pipeline with the Midla-Natchez gas pipeline. In late 2015, the Federal Energy Regulatory Commission granted authorization to construct the proposed pipeline, which would extend 52 miles from Winnsboro, LA, to Natchez, MS (see Daily GPIFeb. 5).

American Midstream also now owns, develops and operates petroleum, agricultural and chemical-liquid terminal storage facilities through its ownership of four marine terminal sites. Assets are in Alabama, Georgia, Louisiana, Maryland, Mississippi, North Dakota, Tennessee and Texas. The midstreamer also has gathering and processing assets in the shallow state and federal waters offshore Louisiana.

JP Energy -- now headquartered in Irving, TX, outside Dallas -- was founded in 2010 and has five operating companies centered around crude oil and refined products. The main entity JP Energy operates refined fuels terminals, crude oil pipelines, crude oil supply/logistics and crude oil storage. Alliant Gas is a community propane distribution business. Pinnacle Propane is a network of retail/wholesale natural gas liquids and refined fuels distribution assets, while Pinnacle Propane Express is a national propane cylinder exchange distribution service. JP Falco is a crude oil trucking division.

American Midstream agreed to acquire 100% of JP Energy; ArcLight plans to combine the general partners. JP Energy public unitholders are to receive $8.63/unit, a 14.5% premium to its closing price last Friday (Oct. 21) and a 14.2% premium to the volume weighted average closing price for 20 trading days ending Friday. The transaction is expected to close by early 2017. Once completed, American Midstream and JP Energy would continue to operate independently.

Once the merger is completed, the entity is expected to generate pro forma adjusted gross earnings of $185 million, assuming 2016 mid-point guidance for each company, and run-rate synergies of around $10 million.

"We believe the merger between American Midstream and JP Energy makes a tremendous amount of sense, offering all stakeholders a solidified financial profile on a stronger, more diversified platform with multiple avenues for growth," said ArcLight managing partner Dan Revers. "Through the combination, ArcLight can concentrate its financial and strategic support and work even more closely with Lynn and his team to continue the growth of American Midstream."

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