Plains All American Pipeline (PAA) will acquire a Permian Basin crude oil gathering system for approximately $1.2 billion from Concho Resources (CXO) and Frontier Midstream Solutions , the parties announced after markets closed Tuesday, Jan. 24.
Simultaneously, Plains All American said it would divest of two noncore assets for $310 million, including its Bluewater gas storage facility in Michigan and a noncore pipeline segment located in the Midwest. Houston-based Plains All American also said Tuesday that it completed the sale of an undivided 40% interest in a segment of the Red River Pipeline to a subsidiary of Valero Energy Partners (VLP) for approximately $70 million.
Plains All American's shares were down nearly 1.5% in after-market trading following the news Tuesday, while Concho's shares were up roughly 1.4%.
Plains All American will pay slightly more than $1.2 billion to acquire Concho and Frontier's interests in Alpha Holding Company, which indirectly owns the Alpha Crude Connector oil gathering system located in the northern Delaware Basin. The buyer will fund the Permian Basin acquisition and its 2017 expansion capital program with the proceeds from 2017 asset sales, which include the previously announced agreement to sell its Northern California terminals for $670 million, and additional common equity offerings, as well as cash on hand.
The buyer had $31 million in cash and cash equivalents at the end of the third quarter, but also ended 2016 with long-term debt of over $10.1 billion.
The deal comes as companies across the energy sector are beefing up in the permian basin.
Targa Resources (TRGP) said Monday, Jan. 23, its subsidiary Targa Resources Partners will acquire Denham Capital Management-backed natural gas gathering and processing and crude oil gathering assets in west Texas' Permian Basin for $565 million.
In December Diamondback Energy (FANG) announced that it had acquired Warburg Pincus-backed Brigham Resources' $2.43 billion and in October RSP Permian's (RSPP) $2.4 billion purchase of Silver Hill Energy Partners from Kayne Anderson Capital Advisors and Ridgemont Equity Partners in October.
Jefferies, which advised Silver Hill on its sale to RSP and Bringham on its sale to Diamondback, provided Plains All American financial advice on the transaction, while Norton Rose Fulbright provided the buyer with legal counsel. Piper Jaffray energy unit, Simmons & Co. International provided financial advice to Concho on the deal, and Vinson & Elkins LLP was the seller's legal counsel.