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Targa to expand Permian midstream position with $565M Delaware, Midland deal

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Targa to expand Permian midstream position with $565M Delaware, Midland deal

Targa Resources Corp. subsidiary Targa Resources Partners LP agreed to acquire gas gathering and processing assets and crude gathering assets in the Delaware and Midland basins for an initial cash consideration of $565 million, expanding its position in the Permian Basin.

The assets are controlled by privately owned Outrigger Delaware Operating LLC, Outrigger Southern Delaware Operating LLC and Outrigger Midland Operating LLC, of which Targa acquired 100% membership interests, according to a Jan. 23 news release. If the assets realize certain performance metrics, Targa may pay additional cash of up to $935 million in 2018 and 2019, meaning total consideration could reach a maximum of $1.5 billion.

Outrigger Delaware and Outrigger Southern Delaware's assets in Loving, Winkler and Ward counties in Texas include acreage dedications from over 145,000 acres supported by mostly fee-based producer agreements with 14-year contracts on average. The assets have 70 MMcf/d of processing capacity and 40,000 bbl/d of crude gathering capacity. Targa intends to merge these assets with its existing Sand Hills system, which would extend its footprint across the Delaware and Midland basins, and possibly with its Versado system.

The Outrigger Midland assets in Texas' Howard, Martin and Borden counties include dedications from over 105,000 acres, also underpinned by long-term, largely fee-based contracts. The assets have 10 MMcf/d of processing capacity and 40,000 bbl/d of crude gathering capacity. These assets would be connected to Targa's WestTX system in Martin County.

"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," said Joe Bob Perkins, CEO of Targa. "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."

To fund the deal, Targa launched a public offering of 7 million common shares. The underwriter, Barclays Capital Inc., would be given a 30-day overallotment option for up to 1,050,000 additional shares.

The offering is not conditioned on the deal closing. If the transaction does not close, the net proceeds would be used for general corporate purposes such as debt repayment, acquisitions, CapEx, additions to working capital and redeeming or repurchasing Targa Resources Partners LP's outstanding notes.

The deal is expected to close in the first quarter. RBC Capital Markets acted as the financial adviser, and Locke Lord LLP acted as legal counsel for Targa.

Targa noted that no additional payment beyond the initial consideration is guaranteed to the sellers. The first potential performance payment is based on realized gross margin from the beginning of March 2017 through February 2018, and the second potential payment is based on realized gross margin from March 2018 through the end of February 2019.