Atlas Pipeline Partners, L.P. (APL) said Tuesday it has agreed to acquire privately held Teak Midstream L.L.C. for $1 billion in cash. The deal is expected to close in the second quarter of 2013.
Teak is a natural gas gathering and processing company with assets located in the core of the Eagle Ford Shale in South Texas. Atlas Pipeline said the deal will provide it with "an ideal entry point" in that region.
Atlas Pipeline is active in the gathering and processing segments of the midstream natural gas industry, with operations in the Mid-Continent and Permian drilling basins of Oklahoma, southern Kansas, and western Texas.
Atlas Pipeline's acquisition is typical of the lure that the Eagle Ford shale holds for energy companies. The Teak assets being wrapped up include a 200 MMcfd cryogenic processing plant, 265 miles of high pressure rich gas gathering lines with 750 MMcfd of throughput capacity, and a second 200 MMcfd cryogenic processing plant ("Silver Oak II") which is expected to be in service in the first quarter of 2014.
Total capital expenditures associated with the build-out of Silver Oak II and other projects are expected to be about $100 million over the next year.
Atlas Pipeline expects further expansion of the acquired Eagle Ford assets beyond 2014, including the potential to add a third 200 MMcfd processing facility and additional gathering pipelines.
Atlas Pipeline will also acquire a 50 to 75 percent interest in various joint venture agreements that currently exist between Teak and TexStar Midstream Services L.P.
Atlas Pipeline has secured financing for the acquisition through a $400 million Series D Convertible Preferred issuance as well as through committed bank financing from Citigroup and Wells Fargo.
Atlas Energy L.P. (ATLS), parent of Atlas Pipeline, will invest $20 million in newly issued APL preferred units as part of the financing of the Teak deal.
Based on the forecast earnings and cash flow from the Teak assets, Atlas Energy expects to receive an additional $25 million to $40 million of annual distributable cash flow as the acquired assets grow and mature in the future.
Atlas Pipeline also commenced an underwritten public offering of 10.3 million common units representing limited partner interests. Atlas Pipeline plans to use the net proceeds from the offering to fund a portion of its Teak acquisition.
Shares of Atlas Pipeline closed Tuesday at $35.46, up 1.90%, on the NYSE, while Atlas Energy closed at $44.97, up 1.72%.
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