US pipeline big Oneok is about to purchase Magellan Midstream Companions for $18.8bn, creating one of many greatest oil and fuel infrastructure firms in North America as consolidation within the hydrocarbon enterprise positive aspects tempo.
The deal, introduced on Sunday, will create an organization with an enterprise worth of $60bn and a sprawling 25,000-mile community of pipelines stretching from North Dakota to Texas.
Pierce Norton, Oneok chief govt, described the transaction as “transformational”.
“The mix of Oneok and Magellan will create a diversified North American midstream infrastructure firm with predominately fee-based earnings, a powerful stability sheet and vital monetary flexibility centered on delivering important vitality services to our prospects and continued sturdy returns to buyers,” he mentioned.
The deal comes as a cash-rich US oil and fuel sector appears to choose up dealmaking after a prolonged dry spell. It’s going to give gas-focused Oneok a giant foothold within the crude and refined merchandise market, which the corporate mentioned would guarantee “steady money flows by means of numerous commodity cycles”.
The shale revolution, which turned the US into the world’s greatest producer of each oil and fuel, has begun to fade as Wall Avenue calls for operators give attention to shareholder returns over infinite drilling campaigns, making mergers and acquisitions one of many few methods to increase their footprint.
There have been a handful of big-ticket offers struck late final yr. Diamondback and Marathon Oil shelled out $3bn apiece to accumulate land within the Permian and Eagle Ford basins. One other roughly $5bn price of offers was finished throughout the sector in January, together with Matador Assets’ buy of personal equity-backed Permian driller Advance Vitality for $1.6bn.
Bankers and attorneys have forecast a “wave” of consolidation amongst drillers and pipeline operators this yr as shale firms attempt to eke out positive aspects in a sector that could be coming into an period of decrease progress.
“To me, it signifies a return to fewer bigger firms controlling the US oil and fuel enterprise,” mentioned Andrew Gillick, a managing director at consultancy Enverus. “Consolidation within the twilight of shale is sensible.”
New pipeline tasks have turn into more and more tough to construct lately as they’re dragged by means of prolonged authorized challenges within the courts. Lawmakers in Washington are at present trying to thrash out an overhaul of the clunky allowing course of.
“Everybody constructed out the pipeline infrastructure for the shale revolution,” mentioned Raoul LeBlanc, vice-president of North American upstream at S&P World Commodity Insights.
“Now that shale is in harvest mode and it’s practically unimaginable to construct new pipelines, it isn’t shocking to see large mergers going down — interval. Anticipate extra.”
Magellan shareholders will obtain $25 money and 0.67 Oneok shares for every unit of inventory they maintain, representing a 22 per cent premium to the corporate’s closing worth on Friday.
“We imagine the premium supplied maximises worth creation for Magellan’s unit holders and displays the important nature of Magellan’s belongings and repair choices,” mentioned Aaron Milford, Magellan chief govt.
The deal, which has been unanimously authorised by the boards of each firms, is anticipated to shut within the third quarter of the yr.
