San Mateo Midstream to buy Cardinal Midstream for $752mn

San Mateo Midstream announced on June 29 that it had agreed to acquire the operating subsidiaries of Cardinal Midstream Partners, a portfolio company of EnCap Flatrock Midstream, for $752mn. The transaction is anticipated to close on or before July 31.

Cardinal’s assets are located in the Permian Basin and include a cryogenic natural gas processing plant complex in Loving County, Texas with a designed inlet capacity of around 320mn cubic feet (9.1mn cubic metres) per day of gas. The company also owns roughly 145 miles (233 km) of low-pressure and high-pressure gas-gathering pipelines located in West Texas and southern Eddy County, New Mexico. The Cardinal plant complex has two residue gas takeaway connections and four natural gas liquids (NGL) takeaway connections, which San Mateo said provide it with the ability to expand processing capacity in the future.

San Mateo is a joint venture between Matador Resources and Five Point Infrastructure, with Matador owning 51% in the company. San Mateo said Cardinal’s midstream assets were complementary to its existing gas-gathering and processing operations. Acquiring Cardinal will allow San Mateo to move gas more easily throughout the northern Delaware Basin – part of the Permian Basin – in southeast New Mexico and West Texas, the company added.

According to the announcement, Cardinal has a mix of major, mid-cap and private Delaware Basin producers. Nine of Cardinal’s gas-gathering and processing customers would be new customers for San Mateo. The company anticipates that its customer base, volume throughput and revenue generation from third-party customers will all directly increase as a result of the transaction.

San Mateo’s designed gas-processing capacity will increase to more than 1bn cubic feet (28.3 mcm) per day while its gathering systems will expand to over 800 miles (1,287 km) of pipeline as a result of the acquisition.

“The Cardinal acquisition is an important step for San Mateo in terms of growth, scale and providing continued flow assurance for our customers,” stated San Mateo’s chairman of the board, Brian Willey, who also serves as the executive vice president of midstream for Matador. “With this acquisition, San Mateo not only gains more processing capacity, a larger pipeline system and a more diverse customer base but also improves its positioning for strategic transactions in the future.”

The company expects to finance the purchase in part through a new term loan of up to $650mn under its existing credit facility. The new term loan will be led by PNC Bank, the lead bank under Matador’s reserves-based credit facility, and Truist Bank, the lead bank under San Mateo’s credit facility. The company anticipates funding the remainder of the purchase price through a combination of cash on hand, borrowings under its existing credit facility and capital contributions from its partners.

Matador noted in a separate announcement that it anticipates the Cardinal acquisition to be cash neutral for it. The producer expects to use distributions from San Mateo or proceeds from a potential drop-down to San Mateo or sale of a portion of Matador’s wholly owned midstream assets to fund any cash contribution.