August 22, 2024 [Storage Terminals Magazine]- Enterprise Products Partners L.P. and Pinon Midstream, LLC, a portfolio company of Black Bay Energy Capital, have announced that an affiliate of Enterprise has entered into a definitive agreement to acquire Pinon Midstream.
The debt-free transaction, valued at $950 million in cash, will significantly bolster Enterprise’s presence in the prolific eastern flank of the Delaware Basin, spanning New Mexico and Texas.
Pinon Midstream specialises in natural gas gathering and treating services and owns critical infrastructure assets, including approximately 50 miles of natural gas gathering and redelivery pipelines, five three-stage compressor stations, and hydrogen sulfide and carbon dioxide treating facilities with a capacity of 270 million cubic feet per day, expected to expand to 450 MMcf/d by the second half of 2025. Additionally, Pinon Midstream operates two of the highest capacity and deepest acid gas injection wells in the Delaware Basin. As part of the acquisition, Enterprise is evaluating the addition of a third injection well to support a total treating capacity of up to 750 MMcf/d.
The acquisition is underpinned by fee-based contracts with long-term acreage dedications, including minimum volume commitments. Pinon Midstream’s monitoring, reporting, and verification plan for permanent sequestration of carbon dioxide in its AGI wells at the Dark Horse Treating Facility in Lea County, New Mexico, received approval from the Environmental Protection Agency in June 2024, fulfilling a key requirement for 45Q tax credit eligibility.
Enterprise views this acquisition as a strategic entry into the Delaware Basin, particularly in the Lea County, New Mexico, and Winkler County, Texas areas, which hold over 7,500 potential well locations and access to multiple geologic production benches. The acquisition addresses a significant bottleneck in the region, where drilling activity has been limited by the lack of sour natural gas treating and AGI well capacity, coupled with lengthy permitting processes for new AGI wells.
“We are excited to announce the acquisition of Pinon Midstream,” said A. J. “Jim” Teague, co-chief executive officer of Enterprise’s general partner. “The Pinon management team has developed the premier sour natural gas treating system in the Delaware Basin, and these assets accelerate our entry into this region by at least three or four years. They are highly complementary to our midstream energy system and provide an excellent entry point for expanding our natural gas processing footprint.”
Teague further noted that the acquisition is expected to generate distributable cash flow accretion of $0.03 per unit in 2025, the first full year of ownership, excluding potential commercial and operational synergies.
Steven Green, CEO of Pinon Midstream, expressed enthusiasm about the acquisition, stating, “Our team set out to build the premier sour gas treatment and carbon sequestration asset in the market, and with the support of our producer clients, we achieved our goal. We are thrilled to contribute our unique Delaware Basin gas treating system to Enterprise, a true leader in the midstream energy business.”
The transaction, expected to close in the fourth quarter of 2024, is subject to customary regulatory approvals and will be funded through cash on hand and borrowings under Enterprise’s existing commercial paper and bank credit facilities.
Pinon Midstream, LLC retained Piper Sandler & Co. as its financial advisor and Kirkland & Ellis LLP as its legal advisor. Locke Lord LLP and Sidley Austin LLP served as legal advisors to Enterprise.
