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Two Midstream Players Line Up Capital

Two transactions announced Tuesday suggest that the midstream sector is not suffering from a shortage of capital -- or of those who see an opportunity to make a buck gathering, processing and marketing gas production.

Tulsa, OK-based Seminole Energy Services LLC said Little Rock, AR-based investment firm The Stephens Group LLC provided the company $55 million in equity capital to support its growth in the retail gas marketing and midstream businesses. And Houston-based Haddington Ventures LLC (see Daily GPI, June 28, 2006) has made a majority equity investment in Tristream Energy LLC to fund Tristream's growth in the midstream sector.

Privately held Seminole currently provides "wellhead-to-burner-tip" natural gas marketing services to end users and producers in 13 states, primarily in the Southwest, Midwest, Midcontinent, and Inter-Mountain regions of the United States. In Illinois and Michigan, Seminole operates under its affiliate brands, Vanguard Energy Services and Lakeshore Energy Services, respectively. Seminole's customer base numbers more than 50,000 with average sales of 600 MMcf/d.

"Our goal is...to acquire or joint-venture midstream assets when we see a nice fit for our existing operations or strategic entry into new markets," said Seminole CEO Robert B. Rosene Jr.

Since it was founded in 1998, Seminole has completed 15 acquisitions. During 2005 and 2006 the company completed acquisitions totaling $35 million, including additional interests in gathering assets, the purchase of the retail book of Tri-Star Producer Services of Texas LP and acquisition of Midwest United Energy Inc., with offices in Colorado and Kansas. The latter two transactions added 30,000 customers and 23 Bcf of retail gas sales.

Rosene told NGI that while over the last two or three years demand for assets from master limited partnerships (MLP) has driven up prices, there are still good deals to be had in the midstream. Attractive areas include the Rocky Mountains, Texas, Louisiana and the Gulf Coast. Seminole is not currently active in the Barnett Shale, but it could be, Rosene said. The company already has relationships with independent producers in Arkansas and the further development of these offers another growth opportunity.

While Seminole doesn't have any gas storage assets currently, the summer-winter gas price spread is still attractive, said Rosene, which continues to support the value of storage assets.

Stephens Production Co., an affiliate of The Stephens Group, has done business with the principals of Seminole for many years, said K. Rick Turner, senior managing principal of The Stephens Group.

Seminole is primarily engaged in providing full-service retail gas marketing to commercial, industrial, agricultural, government and residential choice customers; full-service purchasing from producers, including wellhead distribution and risk management; and midstream services, including building and operating gas gathering, processing and treating facilities.

Tristream was recently formed by the former management of Sago Energy LP. The company is led by Ken Purgason, president and CEO, Tony Catalano, executive vice president and COO and Mike Urban, CFO. They were most recently associated with Sago, a midstream energy company also backed by Haddington. In 1998 Purgason and Catalano co-founded Sago, which ultimately grew to own and operate more than 2,400 miles of gathering and transmission lines and associated processing, fractionation and treating assets in Texas and Louisiana. Urban was Sago's CFO. Sago sold its Louisiana and Texas operating subsidiaries in 2004.

Tristream will provide producers with gathering, dehydration, compression, treating, conditioning/processing, pipeline interconnect and marketing services.

Urban told NGI that Tristream will be making acquisitions as small as $5-10 million up to $100 million and greater if the deal is right. "There's not a real limit on the size of the deal we can do," he said. "We think we can be more competitive in deals under $100 million, but we can also do deals above that."

That said, Tristream expects to be involved in more greenfield projects, unlike Sago, which was mostly an acquirer, said Urban. This fits with other predictions of more organic growth in the midstream (see Daily GPI, Dec. 18, 2006).

He said the firm will not be focusing on any particular geographic area. The Gulf Coast, Rocky Mountains and Appalachia all present opportunities, Urban said. He said the experience of Tristream management makes the firm particularly well suited to areas where production presents a lot of processing/treating challenges.

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