US-based oil producer Apache and investment firm Kayne Anderson Acquisition (KAAC) have agreed to form a $3.5bn worth pure-play, Permian basin midstream company.
The publicly traded entity, named Altus Midstream Company, will be anchored by Apache’s gathering, processing and transportation assets at Alpine High, an unconventional resource play in the Delaware Basin.
In addition, Altus Midstream will have options to acquire equity stake in five proposed pipelines from the Permian Basin to various points along the Texas Gulf Coast.
The five pipeline projects include Gulf Coast Express, Salt Creek NGL Line, EPIC Crude, Shin Oak, and Permian Highway.
Apache CEO and president John Christmann IV said: “The transaction with Kayne Anderson Acquisition Corp. creates a premier midstream enterprise to service Alpine High, an enormous, highly economic upstream resource base in the Permian Basin, the most active oil and gas region in the world.
“Alpine High contains more than 5,000 feet of vertical hydrocarbon bearing formations across approximately 340,000 contiguous net acres.
“This transaction facilitates the allocation of Apache’s capital to the development of the vast Alpine High upstream resource base. In turn, focused capital development in the upstream should bring significant growth to Altus Midstream for many years to come.”
KAAC, which will change its name to Altus Midstream upon completion of the deal, will contribute $952m in cash to the new company.
Apache said it will have approximately 71% stake in Altus Midstream and also has option to increase the stake to approximately 74%, subject to performance earn outs.
KAAC board of directors chairman Kevin McCarthy said: “This transaction fits all the criteria we outlined at the time of KAAC’s initial public offering and creates a pure-play, Permian-focused midstream C-corp.”
Apache midstream and marketing senior vice-president Brian Freed said: “Altus Midstream expects to have more than $900 million of cash and no debt at closing and is projected to be free-cash-flow positive by 2021.”
Altus Midstream will have assets including processing plants, lean-gas treating and compression plants, 198km of gathering pipelines, and 88.5km of processed gas pipelines with three market connections.
The new company aims to add 1 billion cubic feet (Bcf) per day of cryogenic, rich-gas processing by the end of 2020.
Planned to be closed in the fourth quarter of 2018, the deal is subject to approval by KAAC shareholders, as well as other customary closing conditions.