US pipeline giant Oneok is set to buy Magellan Midstream Partners for $18.8 billion, creating one of North America’s largest oil and gas infrastructure companies as consolidation in the hydrocarbons sector gains traction.
The deal, announced Sunday, will create a company with an enterprise value of $60 billion and an extensive 25,000-mile pipeline network stretching from North Dakota to Texas.
Pierce Norton, Oneok chief executive, described the transaction as “transformative.”
“The combination of Oneok and Magellan will create a diversified North American midstream infrastructure company with predominantly fee-based earnings, a strong balance sheet, and significant financial flexibility focused on delivering essential energy products and services to our customers and continued strong returns for investors” he said.
The deal comes as rich money in the United States oil and gas sector seeks to resume negotiations after a long dry spell. It will give gas-focused Oneok a big foothold in the crude and refined products market, which the company says would ensure “stable cash flows across different commodity cycles.”
The shale revolution, which transformed the WE in the world’s largest producer of oil and gas, has begun to fade as Wall Street requires traders to focus on shareholder returns on endless drilling campaigns, making mergers and acquisitions one of the few ways to expand its footprint.
At the end of last year, some large deals were concluded. Diamondback and Marathon Oil each shelled out $3 billion to acquire land in the Permian and Eagle Ford Basins. In January, more deals worth approximately $5 billion were completed across the industry, including Matador Resources’ purchase of the private equity-backed Permian driller Advance Energy for $1.6 billion.
Bankers and lawyers have predicted a “wave” of consolidation among drillers and pipeline operators this year as shale companies look to make gains in an industry that could enter an era of lower growth.
“For me, it means a return to fewer large corporations controlling the oil and gas business in the United States,” said Andrew Gillick, chief executive of consultancy firm Enverus. “Consolidation in the shale twilight makes sense.”
New pipeline projects they have become increasingly difficult to build in recent years as they have been dragged through lengthy legal challenges in the courts. Washington lawmakers are currently trying to craft an overhaul of the clunky permitting process.
“Everyone built the pipeline infrastructure for the shale revolution,” said Raoul LeBlanc, vice president of North American upstream at S&P Global Commodity Insights.
“Now that shale is in harvesting mode and it’s nearly impossible to build new pipelines, it’s not surprising to see major meltdowns happening — period. Expect more.”
Magellan shareholders will receive $25 in cash and 0.67 Oneok shares for every unit of stock held, representing a 22% premium to the company’s closing price on Friday.
“We believe the premium being offered maximizes value creation for Magellan’s shareholder and reflects the essential nature of Magellan’s business and service offerings,” said Aaron Milford, Magellan’s chief executive officer.
The transaction, approved unanimously by the boards of directors of both companies, should close in the third quarter of the year.
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