From the San Antonio Business Journal
After nearly two years of trying to enter the Permian Basin, San Antonio-based midstream company NuStar Energy LP (ticker: NS) will soon become a player in the West Texas shale play.
NuStar confirmed the $1.475 billion acquisition of Navigator Energy Services LLC, a Dallas-based company with pipeline and storage terminal assets in seven West Texas counties. The deal is expected to close during the second quarter of 2017 pending regulatory approval but during a Tuesday morning conference call, NuStar Energy CEO Brad Barron said it sets the stage for the company’s future growth.
“It’s no secret that we’ve been actively searching for a way to break into the Permian Basin, which currently represents 40 percent of all U.S. onshore rig activity,” Barron said. “For the past 18 months or so, we’ve actively looked at opportunities in the Permian but for one reason or another, they’ve not met our acquisition criteria or they included assets that were either too risky or outside of our core areas of expertise.”
The acquisition gives NuStar 500 miles of crude oil pipelines and 1 million barrels of crude oil storage capacity in the Permian. But more importantly, the deal comes with long-term, fee-based contracts with 16 shippers — half of which are publicly traded companies and 11 of them are pure-play Permian Basin producers.
“The Navigator assets are located in five of the six most prolific counties of the Midland Basin,” Barron said. “So, not only would this be considered first-tier acreage, what we’re talking about here is the core of the core of the Midland Basin.”
Because most of Navigator’s assets are classified as “new builds” and minimal maintenance is expected. NuStar plans to budget $200 million over the five years to increase capacity in addition to finding a way to link the network to the company’s export terminal at the Port of Corpus Christi.
“I’m very excited about this acquisition because it will not only mark our entry into the Permian but it’s also an acquisition that’s right down our fairway and compliments our existing portfolio,” Barron said. “Simply put, these assets couldn’t be a better fit.”
On the financial side, NuStar has a committed bridge financing facility in place from Mizuho Bank LTD and issued 12.5 million new shares of stock to raise $580 million for the acquisition deal. Barron said the remaining balance would come from equity and debt offerings that are expected to take place over the next few weeks.
In another behind-the-scenes maneuver to finance the acquisition, NuStar GP Holdings LLC (NYSE: NSH) has agreed to forgo up to $22 million in incentive distribution rights, or IDRs, from any NuStar Energy LP common equity issuances for the next 10 quarters.
“It’s a formative acquisition for NuStar and we look forward to welcoming the Navigator employees and customers to the NuStar family,” Barron said
