NGL Energy Partners has signed an agreement to combine all of the assets of Mesquite Disposals Unlimited with NGL's Water Solutions business for approximately $890m on a cash-free, debt-free basis.
The assets NGL is merging includes a fully interconnected produced water pipeline transportation and disposal system in Eddy and Lea Counties, New Mexico, and Loving County, Texas, and the company is expected to close the transaction in July 2019.
Under the merger agreement, Mesquite SWD is expected to remain as the operator of the Mesquite assets led by Mesquite’s current management team.
After the closing of the transaction, Mesquite system is expected to hold a total of 35 salt water disposal wells, representing more than 1 million barrels per day of disposal capacity expected by year-end 2019.
In addition, approximately 95% of the current system volumes are delivered through pipeline. A significant portion of volumes on Mesquite’s system are contracted under long-term acreage dedications and minimum volume commitments.
NGL CEO Mike Krimbill said: “As we have consistently stated in the past, our water strategy is focused on consolidating, integrating and growing our position in central Reeves County, north to the Texas / New Mexico state line and throughout Lea and Eddy County.
“Pro forma for the Mesquite assets, NGL’s permitted disposal capacity will nearly double to over 2 million barrels per day in the Delaware Basin.
“This transaction creates the redundancy required by our producers to manage produced water by connecting a gathering system to multiple 24-inch pipelines.”
Under the terms of transaction, NGL is expected issue $100m of its 9.00% Class B fixed-to-floating rate cumulative redeemable perpetual preferred units to owners of Mesquite, who will also have an option to receive six million common units at a price of $16.00 per unit.
NGL water solutions EVP Doug White said: “The Mesquite acquisition makes NGL the largest water transportation and disposal company in the Delaware Basin, providing multiple transportation, disposal and recycling options to our E&P customers.
“The breadth and size of our system and diversity of our product offerings allows NGL to provide customized water solutions for all of our customers’ needs. NGL remains focused on delivering on its commitments to its customers through its best-in-class execution.”
The transaction is subject to the satisfaction of specified closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.