By Claire Poole
(Aug 9) – Three $1 billion-plus energy deals involving eight Texas law firms have been announced over a 24-hour period, showing that dealmaking activity is picking up in the oil and gas sector.
Two of the transactions involved infrastructure, or midstream, assets and the other involved oil and gas properties. They were all centered around the West Texas Midland Basin.
The biggest was Apache Corp.’s announcement Wednesday that it planned to contribute its midstream assets at Alpine High in West Texas to Altus Midstream, a partnership owned by Apache and Kayne Anderson Acquisition Corp. (KAAC) that will have an initial value of $3.5 billion.
KAAC is a special purpose acquisition company (SPAC), or “blank check” company, founded by alternative investor Kayne Anderson Capital Advisors. It trades on the Nasdaq.
When the deal closes, KAAC will be renamed Altus Midstream Co. and be anchored by substantially all of Apache’s gathering, processing and transportation assets at Alpine High, an unconventional resource play in the Delaware Basin that Apache announced in 2016.
Altus also will own options for equity participation in five long-haul pipeline projects Apache has in the works from the Permian Basin to various points along the Texas Gulf Coast.
Bracewell was Apache’s legal advisor on the deal. The team included partners Alan Rafte, Jason Jean, Troy Harder, Bruce Jocz and Aaron Roffwarg. Counsel and associates were Allison Perry, Derek Speck, Jared Berg, Patrick Johnson and Jay Larry.
P. Anthony Lannie is general counsel of Apache, where he has served in the legal department since 2003. Before that the Vanderbilt-educated lawyer was president of Kinder Morgan Power, president of Coral Energy Canada in 1999 and general counsel of Coral Energy and Tejas Gas.
Apache’s financial advisors were Barclays Capital Inc.’s Zach Jordan and Tudor, Pickering, Holt & Co.’s Aaron Blomquist and Matt Rollins.
Latham & Watkins counseled KAAC. That team included partners Jesse Myers, Bill Finnegan and Debbie Yee; associates Thomas Verity, Dan Harrist, Lexi Udeh and Rebecca Kendall; and tax partner Tim Fenn with associates Bryant Lee and Mike Rowe.
Citigroup was KAAC’s financial advisor, including Tim Kisling, Michael Jamieson, Claudio Sauer and Steve Trauber. Citigroup, Barclays and Credit Suisse were agents on a related private placement of Class A shares.
Altus will be a pure-play Permian Basin midstream C-corp with no incentive distribution rights. Apache will own 71 percent and have the ability to earn 37.5 million shares if certain share price and operational thresholds are met over the next five years.
KAAC is contributing $952 million in cash, including $380 million in proceeds from its initial public offering plus $575 million in proceeds from the private placement.
Altus won’t have any debt when the deal closes and cash-on-hand will be used to fund ongoing midstream investments.
The transaction has to clear KAAC shareholders and is expected to close in the fourth quarter.
Raymond James analyst John Freeman said the sale of the assets was expected, but may disappoint some Apache investors. “Apache will relieve much of its future midstream capital burden via Altus, but investors looking for an immediate cash injection that could fund buybacks may balk at the deal,” he said.
Seaport Global Securities said it was sticking with its sell rating on Apache’s stock, as it still sees it trading at a premium to the industry average.
The second deal is Occidental Petroleum’s sale of assets on Wednesday to Lotus Midstream and Moda Midstream for $2.6 billion.
Vinson & Elkins counseled Occidental, known as Oxy, including partner Alan Beck, senior associate Matt Falcone and associate Reese O’Connor.
Marcia Backus is general counsel of Occidental, which she joined in 2013. The University of Texas-trained lawyer previously was at Vinson & Elkins, where she worked on transactions in more than 20 countries. She also served on the firm-wide management committee and as co-chair of the corporate department and chair of the partnership admissions committee.
Oxy’s financial advisors included Citi’s Michael Jamieson, Tim Kisling, Jason Miner, Claudio Sauer and Steve Trauber.
Locke Lord counseled EnCap Flatrock Midstream, which backs both Lotus and Moda.
Partners Michael Blankenship, Bill Swanstrom and Steve Peterson worked on the Lotus deal, which involves acquiring the Centurion pipeline system and the Southeast New Mexico crude oil gathering system for what some estimated was more than $1 billion.
Also pitching in were partner Terry Radney, senior counsel Elizabeth Guffy and Max Stubbs and partner Van Jolas.
Paul Hastings is representing Sugar Land-based Lotus with a team led by energy M&A partner Jimmy Vallee and energy M&A associate Isaac Griesbaum. Assisting were energy M&A associates Monica Diddell and Stephen Perry and tax partner Greg Nelson along with attorneys at the firm’s offices outside of Texas.
Barclays provided financial advice to Lotus, including Zach Jordan and Nelson Mabry.
The Centurion pipeline system covers 3,000 miles extending from the Permian to the Cushing, Oklahoma, oil storage and transportation hub. The Southeast New Mexico gathering system includes 50 miles of pipelines with connections to the Centurion system.
EnCap Flatrock sponsored Lotus in February with an initial capital commitment of $400 million and will provide additional financial support for the acquisition. Lotus is led by former executives at Sunoco Logistics, which is now part of Energy Transfer in Dallas.
Peterson, Swanstrom and Blankenship also led the Locke Lord legal team for EnCap on Moda, which bought the Oxy Ingleside Energy Center in Ingleside, Texas, and certain crude oil and liquefied petroleum gas infrastructure. The center links Eagle Ford Shale and Permian Basin production to domestic and international markets.
Other Locke Lord attorneys on the Moda deal were Jolas, Stubbs and senior counsel Mechelle Smith.
Baker Botts counseled Moda led by a partner out of the firm’s New York office. But senior associate Scott Looper in Houston, associate Kyle Doherty in Houston, partner Preston Bernhisel in Dallas, partner Bobby Philpott in Houston and senior associate Kevin Henderson in Dallas were part of the deal team.
Crain, Caton & James also provided Moda with legal advice. Guggenheim Securities was Moda’s legal advisor.
Moda was started by former executives at Oiltanking Partners after its sale to Houston-based Enterprise Products Partners.
Blankenship said the public markets have been tough for midstream companies, but large deals such as these show how robust activity is in the space.
“We expect to see more midstream deals, especially with infrastructure funds purchasing midstream companies by either entering into a joint venture with a strategic or using their own dry powder and keeping the management in place,” he said.
Oxy has been selling assets in the U.S. and abroad to focus on expanding its production in the Permian, where it’s one of the top producers.
Raymond James analyst Pavel Molchanov said he’s not “shedding a tear” for Oxy’s departing midstream assets, saying the sale came at a “very juicy” overall multiple of 14 times last year’s EBITDA (albeit not as lofty on this year’s expected EBITDA).
The third deal is Ajax Resources’ sale of its northern Midland Basin assets to Diamondback Energy for $1.2 billion.
The price included $900 million in cash and 2.58 million shares of Diamondback stock, subject to certain closing adjustments.
Thompson & Knight advised Kelso-backed Ajax with a team led by partner Robert P. Dougherty III. Others included partners Wesley P. Williams, Debra J. Villarreal, J. Dean Hinderliter, Jason Patrick Loden, Anthony J. Campiti and William J. Schuerger and associates Courtney J. Roane, Catharine A. Hansard, Aaron C. Powell, and Minator Azemi.
Jefferies was Ajax’s financial advisor.
Partner Michael Byrd at Akin Gump Strauss Hauer & Feld represented Diamondback. He was accompanied by partners Seth Molay and Matt Zmigrosky and partner Alison Chen on tax; senior counsel Irina Maistrenko; counsel Stephen Boone and James Robertson; senior practice attorney Shane Sullivan; and associates Niki Roberts, Jacob Johnson and Jiha Ko.
Assisting were attorneys in Akin’s Washington, D.C. and Los Angeles offices on environmental, labor/employment and antitrust matters.
In a separate transaction, Akin advised Diamondback on a drop-down sale of 1,696 net royalty acres to Viper Energy Partners for $175 million. That deal, led by Molay and Byrd, is expected to close this month.
Randall Holder is general counsel of Midland-based Diamondback, which he joined in 2011. Before that the Oklahoma City University-trained attorney was general counsel of Great White Energy Services and R.L. Hudson & Co.
Ajax announced the sale Thursday, saying it comes less than three years after acquiring the Yellow Rose field from W&T Offshore for $376.1 million. It expects to close the transaction on Oct. 31.
Raymond James’ Freeman said Diamondback previously telegraphed that it was actively looking for accretive transactions in the basin.
Williams Capital analyst Gabriele Sorbara said the valuation was pegged at $102,900 per flowing barrel of oil equivalent per day of production, which is very favorable to the company’s current implied market valuation of $127,000 per flowing barrel.
The deal includes 25,493 net leasehold acres, average net production of 12,000 barrels of oil equivalent per day (88 percent of which is oil), 367 net identified potential horizontal drilling locations with an average lateral length of 9,500 feet and saltwater disposal and fresh water access infrastructure.
Ajax CEO Rich Little said in a statement that the transaction complements Diamondback’s acreage position and further consolidates the Northern Midland Basin.
Ajax chairman Forrest Wylie said the company acquired the asset in 2015 at a time when the area wasn’t thought to have good prospects. But the company executed a multi-zone program that delivered repeatable, highly economic well results “that compete favorably anywhere in the basin,” he said.