- $565 million initial cash consideration represents ~9x 2017E EBITDA multiple
- Attractive fee-based natural gas gathering and processing and crude gathering assets in the Permian Basin backed by long-term contracts
- Increases Targa’s gross processing capacity to ~2 Bcf/d across the Permian Basin by year-end 2017
- Adds over 250,000 acres dedicated under long-term contracts from a strong mix of active operators in the Delaware and Midland Basins
- Future performance-linked earn-out payments based on gross margin from existing contracts realized over the next two years
- Expected to be accretive to distributable cash flow in 2017 and beyond
Targa Resources Corp. (NYSE:TRGP) (“Targa” or the “Company”) today announced it has executed definitive agreements for its subsidiary, Targa Resources Partners LP, to acquire 100% of the membership interests of Outrigger Delaware Operating, LLC, Outrigger Southern Delaware Operating, LLC (together “Outrigger Delaware”) and Outrigger Midland Operating, LLC (“Outrigger Midland” and together with “Outrigger Delaware”, “Outrigger Permian”). Targa will pay initial cash consideration of $565 million for the membership interests.
The Outrigger Delaware gas gathering and processing and crude gathering assets are located in Loving, Winkler and Ward counties. The Delaware Basin assets are underpinned by high-quality producer dedications of more than 145,000 acres under long-term, largely fee-based contracts, with a weighted average contract life of 14 years. Outrigger Delaware assets include 70 million cubic feet per day of processing capacity. Targa plans to connect the Outrigger Delaware assets to Targa’s existing Sand Hills system, extending Targa’s premier Permian Basin footprint across the Delaware and Midland Basins. Targa also plans to evaluate future connections from Outrigger Delaware to its Versado system. Currently, there is 40,000 barrels per day of crude gathering capacity on the Outrigger Delaware system.
The Outrigger Midland gas gathering and processing and crude gathering assets are located in Howard, Martin and Borden counties. The Midland Basin assets are underpinned by high-quality producer dedications of more than 105,000 acres under long-term, largely fee-based contracts, with a weighted average contract life of 13 years. Outrigger Midland currently has 10 million cubic feet per day of processing capacity, and Targa expects to connect the Outrigger Midland assets to Targa’s WestTX system in Martin County. Currently, there is also 40,000 barrels per day of crude gathering capacity on the Outrigger Midland system.
“The acquisition of the Outrigger Permian assets complements our existing gas gathering and processing footprint very nicely, while expanding our reach deeper into both the Delaware and Midland Basins. The producer acreage that we will serve through this acquisition has decades of drilling inventory in prolific areas, with multiple stacked pay zones,” said Joe Bob Perkins, Chief Executive Officer of the Company. “We also are excited about the opportunities to combine Outrigger Permian’s existing crude gathering infrastructure and our expertise in crude gathering in another basin as a new platform for growth in the Permian. As structured, this transaction is accretive in 2017, and we believe that the earn-out structure de-risks the overall transaction profile and aligns us with the continued success of the acquired assets.”
Completion of this transaction is subject to customary regulatory approvals and other closing conditions. The transaction is expected to close in the first quarter of 2017.