Why Energy Transfer Is Buying Crestwood For $7.1 Billion

By Amit Chowdhry • Aug 19, 2023

Energy Transfer LP and Crestwood Equity Partners LP recently announced that the parties have entered into a definitive merger agreement under which Energy Transfer will acquire Crestwood in an all-equity transaction valued at approximately $7.1 billion, including the assumption of $3.3 billion of debt, based on the closing price on August 15, 2023.

Under the terms of the deal, Crestwood common unitholders will receive 2.07 Energy Transfer common units for each Crestwood common unit. And the deal is expected to close in the fourth quarter of 2023, subject to the approval of Crestwood’s unitholders, regulatory approvals, and other customary closing conditions. Upon closing, Crestwood common unitholders are expected to own approximately 6.5% of Energy Transfer’s outstanding common units.

Crestwood’s system includes gathering and processing assets located in the Williston, Delaware, and Powder River basins, including approximately 2.0 billion cubic feet per day of gas gathering capacity, 1.4 billion cubic feet per day of gas processing capacity and 340 thousand barrels per day of crude gathering capacity. And if consummated, this deal would extend Energy Transfer’s position in the value chain deeper into the Williston and Delaware basins while also providing entry into the Powder River basin. These assets are expected to complement Energy Transfer’s downstream fractionation capacity at Mont Belvieu and its hydrocarbon export capabilities from its Nederland Terminal in Texas and the Marcus Hook Terminal in Philadelphia, Pennsylvania.

This deal is also expected to benefit Energy Transfer’s NGL & Refined Products and Crude Oil businesses by adding strategically located storage and terminal assets, including approximately 10 million barrels of storage capacity and trucking and rail terminals. And these systems are anchored by predominantly investment-grade producer customers with firm, long-term contracts and significant acreage dedications.

The deal is expected to be immediately accretive to distributable cash flow per unit and neutral to Energy Transfer’s leverage metrics upon closing. And similar to Energy Transfer, Crestwood’s cash flows are supported by primarily fee-based revenues from long-term contracts with investment-grade counterparties. Along with the increased scale and strengthened balance sheet, Energy Transfer expects to be able to improve on the current cost of financing for the acquired debt securities. Structured as a 100% unit-for-unit exchange, the transaction is tax-efficient to Crestwood unitholders and is anticipated to position both partnerships for long-term value upside through the combination.

Energy Transfer also expects to achieve at least $40 million of annual run-rate cost synergies before additional benefits of financial and commercial opportunities. And Energy Transfer’s premier business model, strong balance sheet, and a backlog of growth opportunities support the potential for significant additional value creation over time. The tax-efficient transaction is expected to provide Crestwood unitholders a benefit to distributions per unit and an opportunity to participate in Energy Transfer’s targeted annual distribution per unit growth rate of 3-5%.