Midstream operator NuStar Energy has struck a deal, worth US$1.48 billion, to expand into assets in Texas’ Midland Basin. Announcing the agreement on April 11, NuStar said it would buy Navigator Energy Services.
The deal will provide NuStar with around 500 miles (800 km) of oil pipelines, carrying 74,000 bpd, a gathering system and around 1 million barrels of storage capacity, of which 440,000 barrels is leased to third parties.
Closing is expected to occur in the second half of May and is subject to the usual conditions.
“We are excited about starting 2017 with a strategic acquisition, and the addition of Navigator’s Permian assets marks NuStar’s entry into one of the most prolific basins in the US,” said NuStar’s president and CEO, Bradley Barron. “We expect that the purchase price, when coupled with modest future growth capex to build out the system, will result in a high single-digit multiple as volumes ramp over time.”
The same day, NuStar announced a public offering for 10.5 million common units, which would go to financing the Navigator acquisition. The following day, NuStar increased its offering size to 12.5 million units, to raise gross proceeds of US$579 million.
A note from FBR said the deal was based on more than just entering the Permian for NuStar. “We anticipate this acquisition is intended to drive volumes toward its recently acquired Corpus Christi terminal assets,” the note from Robert Balsamo said. He went on to say that while its terminal assets were not hooked up to Permian pipelines, “the company is working on projects to leverage those volumes. Notably, two pipeline projects with projected capacity of 400,000 bpd each were announced in recent weeks with Corpus Christi as their destination.”
First Reserve acquired Navigator in December 2014 with a US$250 million equity commitment. The managing director of First Reserve’s energy infrastructure fund, Mark Saxe, expressed his belief that NuStar would “have tremendous success integrating Navigator and transitioning it into the next phase of growth”.
NuStar was advised by UBS, with Andrews Kurth Kenyon providing legal advice. Navigator was supported by Deutsche Bank and Simpson Thacher & Bartlett.
Navigator, in January, set out plans to expand its Big Spring Gateway (BSG) pipeline system, which serves the Permian Basin. The company said its expansion plans would increase the system’s capacity to more than 650 miles (1,050 km) and with total throughput of around 600,000 bpd. The expansion plan was expected to be in service in the first half of the year.
The BSG system was brought into service in September 2015, with deliveries going to Sunoco Logistics’ West Texas Gulf pipeline and the Permian Express 2.