DENVER–(BUSINESS WIRE)– American Midstream Partners, LP (NYSE: AMID) (the “Partnership”) today announced the acquisition of interests in strategic Gulf of Mexico midstream infrastructure and incremental ownership in Delta House for total consideration of approximately $225 million.
Highlights include:
- The Partnership acquired interests in the Destin natural gas pipeline and the Tri-States and Wilprise natural gas liquids (“NGL”) pipelines, all of which are FERC-regulated pipelines that collectively serve as a primary transport system for rich-gas production from the Eastern Gulf of Mexico. The Destin pipeline is supplied byDelta House and various other large Eastern Gulf of Mexico producing fields. The pipeline interests were acquired from an affiliate of the general partner of the Partnership.
- The Partnership acquired a majority interest in crude, natural gas, and salt water onshore and offshore pipelines located in the Gulf of Mexico, including the Henry Gas Gathering System, from Chevron.
- The Partnership acquired from an affiliate of its general partner an additional 1 percent interest in Delta House, increasing the Partnership’s total ownership in Delta House to approximately 14 percent.
- The Partnership also intends to acquire an interest in another offshore natural gas pipeline from an affiliate of its general partner during the second quarter 2016. This potential acquisition is fully funded under the current financing.
- Total acquisition consideration of approximately $225 million equates to an anticipated multi-year Adjusted EBITDA1 multiple of approximately 6 times.
- The Partnership revised 2016 guidance with Adjusted EBITDA1 in a range of $125 million to $135 million and Distributable Cash Flow (“DCF”) 1 in a range of $85 million to $95 million, representing year-over-year growth of approximately 100 percent.
- The Partnership forecasts fee-based cash flow of greater than 90 percent, distribution coverage of greater than 1.5 times, and leverage of approximately 4.0 times in 2016.
- The acquisitions were funded with preferred equity issued to an affiliate of ArcLight Capital Partners, LLC (“ArcLight”), which controls the general partner of the Partnership, and borrowings on the revolving credit facility.
1Indicates a non-GAAP financial measure.
First Quarter 2016 Distribution
The Board of Directors of the Partnership’s general partner today declared a quarterly cash distribution of $0.4125 per common unit, or $1.65 per unit on an annualized basis. The first quarter 2016 distribution is equal to the Partnership’s minimum quarterly distribution and represents the nineteenth consecutive quarter of distributions.
In light of continued illiquid and unattractive capital market conditions, the Board of Directors made the decision to reduce the distribution per common unit by $0.24, or approximately 13 percent, on an annualized basis to provide the Partnership with incremental liquidity, including foregone incentive distribution right payments, to fund growth projects or reduce borrowings on the revolving credit agreement.
The distribution will be paid May 13, 2016, to unitholders of record as of the close of business May 4, 2016, together with the general partner of American Midstream. The ex-dividend date is May 2, 2016.
Executive Commentary
“We are pleased to announce strategic and accretive acquisitions in the midst of a difficult environment that expand our midstream footprint and further diversify our cash flow profile with investment grade-rated producer customers,” commented Lynn Bourdon, Chairman, President and Chief Executive Officer. “The acquisition of strategic midstream infrastructure serving prolific areas of the Gulf of Mexico is an important step towards transforming American Midstream into a significant and integrated participant in offshore infrastructure, particularly in the deep-water. Our combined interests in theDestin and High Point gathering and transmission systems cover more than 10,000 square miles of active production in the Gulf. In addition, the onshore segment of Destinextends our gas transmission footprint into an active region serving the southeast marketplace. The additional pipeline interests increase our size and scale through incremental fee-based cash flows supported primarily by take-or-pay contracts and life-of-lease dedications. When combined with our onshore gathering, processing, transmission and terminals infrastructure, we remain well positioned to continue operating successfully through the current industry downturn, while positioning the Partnership to achieve significant long-term growth as industry conditions improve.
“In conjunction with completing these strategic acquisitions we have solidified the Partnership’s financial position with significant year-over-year growth of Adjusted EBTIDA and DCF, as well as improved distribution coverage and leverage,” continued Mr. Bourdon. “As part of our 2016 forecast, we intend to pay distributions on all preferred equity at a rate of 50 percent cash and 50 percent PIK for the remainder of 2016, and transition to paying all preferred equity with 100 percent cash beginning next year, resulting in year-end 2017 distribution coverage of approximately 1.2 times. Further, we believe that by re-setting the distribution to the minimum quarterly distribution we are creating additional liquidity to fund growth opportunities, or reduce borrowings on the revolving credit agreement, during a period of significant dislocation in the public equity markets. We are solidly in a position, absent a significant and unforeseen negative event that directly affects the Partnership, to pay at least the minimum quarterly distribution going forward.
“As we look ahead, we are committed to long-term sustainable distribution growth for our unit holders and we intend to invest significant capital during the next several years through a combination of organic growth projects, identified drop-down transactions, and complementary third-party acquisitions like those announced today,” continued Mr. Bourdon. “In the event the capital market dislocation continues and we are unable to access public equity markets, ArcLight has indicated the intent to continue supporting the Partnership by providing American Midstream with access to equity capital. With this continued strong support of ArcLight, we are well positioned to achieve multi-year sustainable cash flow growth that will drive the resumption of distribution growth as early as 2017.”
“The preferred equity transaction is a testament to our strong and continuing support forAmerican Midstream, and the transactions executed today underscore the highly collaborative nature of the working relationship between American Midstream and its sponsor,” said Dan Revers, ArcLight’s Managing Partner. “Looking ahead, we are actively working with the American Midstream team on additional opportunities primarily within the Partnership’s core operating areas that we believe will drive incremental long-term growth for the Partnership, and we remain committed to supporting American Midstream with access to capital until the public capital markets recover.”
Transaction Funding
The acquisitions were funded with the issuance of $120 million, or 8.6 million, Series C convertible preferred units issued to ArcLight and approximately $105 million in borrowings under the Partnership’s revolving credit facility. The preferred equity was issued at $14 per unit and will receive preferred distributions equal to the greater of$0.4125 per unit or the distribution paid to the common unit holders, paid via cash, paid-in-kind units (“PIK”), or a combination thereof, at the discretion of the board of directors. In addition, the Partnership executed a warrant agreement whereby ArcLight has the right to acquire up to 1.2 million common units (subject to adjustment) at a strike price of$7.25 per unit.
2016 Forecast
As a result of the acquisitions announced today, the Partnership forecasts Adjusted EBITDA in a range of $125 million to $135 million and DCF in a range of $85 million to $95 million, representing year-over-year growth of approximately 100 percent. The updated 2016 forecast includes the benefit of the acquisitions announced today, partially offset by marginally lower throughput volumes on certain legacy systems and lower-than-expected off-spec volumes at Longview, which combined account for a decrease of approximately 5 percent to the Partnership’s previous 2016 Adjusted EBTIDA forecast.
In addition, the Partnership forecasts fee-based cash flow of greater than 90 percent, distribution coverage of greater than 1.5 times, and leverage of approximately 4.0 times for the full-year 2016. The Partnership is forecasting distributions on all preferred equity will be paid at a rate of 50 percent cash and 50 percent PIK for the remainder of 2016, and intends to pay 100 percent cash distributions on all preferred equity beginning in 2017.
Growth capital expenditures are forecasted in a range of $60 million to $70 million, an increase from the Partnership’s previous forecast as a result of incremental spending on organic growth projects on base assets.
Gulf of Mexico Assets
Destin, Tri-States and Wilprise are complementary to the Partnership’s existing footprint in the Gulf of Mexico and are the primary means of gathering and transportation for Eastern Gulf of Mexico natural gas and NGLs to reach end-markets. The assets include approximately 1.2 billion cubic feet per day (“Bcf/d”) of natural gas gathering and transport capacity supported by fixed and/or dedicated volumes and 120,000 barrels per day (“Bbl/d”) of NGL transport capacity.
Destin Pipeline – The Destin pipeline is a FERC-regulated, 255-mile natural gas transport system with total capacity of 1.2 Bcf/d. The system originates offshore in the Gulf of Mexico and includes connections with four producing platforms, and six producer-operated laterals, including Delta House. The 120-mile offshore portion of the system terminates at the Pascagoula processing plant and is the single source of raw natural gas to the plant. The onshore portion of Destin is the sole delivery point for merchant-quality gas from the Pascagoula plant and extends 135 miles north in Mississippi. Destincurrently serves as the primary transport of gas flows from the Barnett and Haynesville shale plays to Florida markets through interconnections with major interstate pipelines. Contracted volumes on Destin are based on life-of-field dedication, dedicated volumes over a given period, or interruptible volumes as capacity permits. The Partnership owns a 49.7 percent interest in Destin and an affiliate of the Partnership’s general partner has an option to acquire an additional 17 percent interest in mid-2017. Enbridge Inc. is the remaining minority interest holder. Destin is currently operated by BP.
Tri-States and Wilprise NGL Pipelines – The Tri-States pipeline is a FERC-regulated, 161-mile NGL pipeline and sole form of transport to Louisiana-based fractionators for NGLs produced at the Pascagoula Plant served by Destin, the Williams Mobile Bay Plant, and the DCP Mobile Bay Plant. Virtually all Eastern Gulf of Mexico natural gas production is processed at one of the plants connecting to the Tri-States pipeline. The pipeline terminates at the Kenner Louisiana Junction where NGLs access Enterprise Product Partner LP’s Norco fractionation facility, the Wilprise pipeline, and/or the Belle Rose NGL pipeline. The Wilprise pipeline is a FERC-regulated, approximately 30-mile NGL pipeline that originates at the Kenner Junction and terminates in Sorrento, Louisiana where volumes flow via pipeline to a Baton Rouge fractionator operated by EPCO. The Partnership owns a 16.7 percent interest in the Tri-States pipeline and a 25.3 percent interest in the Wilprise pipeline. Enterprise Products Partners, LP is the majority interest holder in both pipelines and operator of Wilprise; BP currently operates Tri-States.
Emerald Midstream, LLC, an affiliate of ArcLight, acquired the interests in Destin, Tri-States and Wilprise in March 2016. The Partnership will acquire the interests from the ArcLight affiliate in April 2016.
Chevron Gulf of Mexico Assets
Assets acquired from Chevron expand American Midstream’s existing Gulf of Mexicofootprint with the addition of approximately 200 miles of crude, natural gas, and salt water gathering pipelines located onshore- and offshore-Louisiana in the Gulf of Mexico, including the Henry Gas Gathering System, with multiple deliveries into the Fort Henry/Henry Hub complex and crude pipeline assets that deliver into Texas City, Texas;Erath, Louisiana; and Saint James, Louisiana. The Partnership owns a 60 percent interest in the assets with joint venture partner Panther Offshore Gathering Systems, LLC (“Panther”) owning the remaining 40 percent. Volumes contracted on the gathering systems are primarily take-or-pay with fixed revenue for the first eight years. American Midstream will operate the natural gas and salt water pipelines and an affiliate of Panther will operate the crude oil gathering pipelines.
Delta House
In September 2015, the Partnership acquired a 12.9 percent interest in Delta House, a fee-based, semi-submersible floating production system and associated oil and gas export pipelines in the deep-water Gulf of Mexico. The Partnership acquired an incremental 1 percent interest from an ArcLight affiliate in April 2016. Delta House is located in the Mississippi Canyon region with nameplate processing capacity of 80,000 Bbl/d of oil and 200 million cubic feet of gas per day (“MMcf/d”), and peak processing capacity of 100,000 Bbl/d and 240 MMcf/d, respectively. Delta House commenced operations in April 2015 and reached nameplate oil capacity in December 2015 with ten wells currently operating. Delta House’s natural gas export pipeline interconnects withDestin, providing the Partnership unique insight to the downstream pipeline system.
Advisors
Evercore served as exclusive financial advisor to the Conflicts Committee and provided a fairness opinion for the preferred equity transaction. Thompson & Knight LLP served as legal counsel to the Conflicts Committee.
About American Midstream Partners, LP
Denver-based American Midstream Partners, LP is a growth-oriented limited partnership formed to own, operate, develop and acquire a diversified portfolio of midstream energy assets. The Partnership provides midstream services in Texas, North Dakota, and theGulf Coast and Southeast regions of the United States. For more information aboutAmerican Midstream Partners, LP, visit www.AmericanMidstream.com.
The Partnership filed its Annual Report on Form 10-K for the year ended December 31, 2015 on March 7, 2016 with the Securities and Exchange Commission. A copy of the annual report, which contains the Partnership’s audited financial statements, is available for viewing and downloading on the Partnership’s website atwww.AmericanMidstream.com. Investors can receive, free of charge, a hard copy of the annual report by emailing IR@AmericanMidstream.com or submitting a written request toAmerican Midstream Partners, LP Attention: Investor Relations 1400 16th Street, Suite 310, Denver, CO 80202.
