Summit Midstream Partners LP has agreed to acquire Outrigger DJ Midstream LLC and the operating subsidiaries of Sterling Energy Investments LLC for about $305 million total in cash to expand in Colorado.

The Outrigger DJ assets in Weld County, CO, within the Denver-Julesburg (DJ) Basin, comprise a 60 MMcf/d cryogenic natural gas processing plant, about 70 miles of low-pressure gas gathering lines, roughly 90 miles of high-pressure gas gathering lines, 12,800 hp of field and plant compression, and about 30 miles of crude oil gathering pipelines.

The Sterling subsidiaries, known collectively as Sterling DJ, are in Weld and Logan counties, and in Cheyenne County, NE. They include three cryogenic processing plants with nameplate capacity of 100 MMcf/d, about 450 miles of gas gathering lines, 8,500 hp of field compression, freshwater rights, and about 40 miles of subsurface freshwater delivery infrastructure.

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“These highly value- and credit-accretive transactions create a strategic franchise position in the DJ Basin that we believe will generate significant free cash flow growth for Summit in the coming years while immediately enhancing the quality and availability of services for our combined customer base in the region,” said Summit CEO Heath Deneke.

The acquisitions allow “the integration of our underutilized Hereford gathering and processing system with the capacity constrained Sterling DJ and Outrigger DJ systems,” Deneke added.

“Combining operations of the three systems will create significant commercial and operating synergies and will provide substantial running room to grow dedicated producer volumes in the coming years with minimal capital expenditure requirements,” the CEO noted. “Outrigger DJ and Sterling DJ customers are expected to connect over 75 new wells in 2023 and are well-positioned to sustain and potentially grow that level of development activity in the coming years with more than 675 active permits currently held on dedicated acreage.”

The transactions, which are slated to close by year’s end, would triple Summit’s DJ gas processing capacity and add an estimated 505,000 dedicated leased acres in rural Weld County, according to the company. 

The Outrigger agreements include long-term, fee-based contracts with a weighted average term of more than 10 years, Summit management said, with volume throughput underpinned by an estimated 310,000 dedicated acres.

Sterling’s commercial contract portfolio includes long-term, fee-based and percentage-of-proceed agreements with a weighted average term of more than 11 years. Dedicated acreage underpinning the Sterling DJ system totals an estimated 170,000 leased mineral acres attributable to several leading DJ Basin producers, according to Summit. 

Top DJ producers have forecast continued strong production through 2022 amid favorable pricing and a tightly supplied global oil market.

Deneke said that, “given the prevalence of gas processing constraints across the DJ Basin, the connectivity of the combined asset footprint with other gathering systems and the integration of the underutilized Summit Hereford and Sterling DJ Jackson Lake processing complexes, we believe there will be additional near-term upside opportunities to grow volumes both organically and through offload arrangements with other midstream operators in the basin.”

The CEO said, “these transactions create tremendous equity value for our unitholders while enhancing Summit’s overall credit metrics and ability to de-lever the balance sheet over the next several years.

“The transactions received strong support from our existing commercial bank lenders and bondholders, enabling us to finance the acquisitions through the combined $115 million of previously announced divestiture proceeds, borrowings under our credit facility, and an oversubscribed, fully committed, new issuance of $85 million of 8.5% senior secured second lien notes due 2026.”