A number of major energy companies made headlines this week after unveiling multibillion-dollar M&A transactions in the midstream space, but investors showed a lack of immediate excitement to such deals even as some industry analysts showed optimism.
Hess Midstream Partners LP, for one, struck a $6.2 billion deal to acquire the ownership interests of Hess Corp. and Global Infrastructure Partners in Hess Infrastructure Partners LP. The deal includes Hess Infrastructure Partners' 80% stake in Hess Midstream's oil and gas midstream assets, its water service business and outstanding economic general partner interest and incentive distribution rights in Hess Midstream.
The midstream partnership said it will also assume about $1.15 billion of existing Hess Infrastructure Partners debt, issue about 230 million Hess Midstream units, and pay Hess Corp. and Global Infrastructure Partners a cash total of about $550 million.
Hess Midstream will change its organizational structure into a so-called Up-C structure, eliminating incentive distribution rights to sponsors. Slated to close in the fourth quarter, the transaction would create a large-scale midstream company with an enterprise value of more than $7.25 billion.
While Hess Midstream's reorganization sets a solid example for other pipeline companies under pressure to eliminate required payments to their general partners, some midstream analysts said the structure does not completely resolve the corporate governance issues that deter investors from buying into master limited partnerships. Shareholders were also lukewarm to the announcement, with Hess Midstream stock gaining just over 4% to trade at $20.37 per unit as of 12:45 p.m. ET on Oct. 4.
Meanwhile, NextEra Energy Partners agreed to buy Meade Pipeline Co. LLC in a $1.37 billion deal, part of which is the acquisition of AltaGas Ltd. subsidiary WGL Midstream Inc.'s stake in the Central Penn pipeline for about $657 million. The deal for Meade Pipeline also involves NextEra's acquisition of the stake of another owner, Cabot Oil & Gas Corp., for $256 million.
Meade Pipeline is owned by Cabot, WGL Midstream, and EIF Vega Midstream. Meade Pipeline owns about 39% of the Central Penn line, the greenfield pipeline segment of the Williams Cos. Inc.-led Atlantic Sunrise natural gas transportation project. The 185-mile Central Penn has a transportation capacity of up to 1.7 Bcf/d.
Both stake sales are scheduled to close in the fourth quarter.
Even though some analysts were positive about the transaction, shareholders reacted in a tepid way to the announcement. Cabot shares were up just 1.17% to $17.74 as of around midday after the deal was announced.
On the private equity side of midstream deal making, some entities are seeing success in monetizing their midstream interests, but a number of investment firms are struggling to unload their assets as their portfolio companies run into roadblocks in both the public and private markets, industry experts said.
For instance, Blue Racer Midstream LLC's IPO is on ice after a Delaware court ruled that EnCap Flatrock Midstream cannot move forward with the offering under the current arrangement with partners Williams and Oaktree Capital Management LP. TPG Capital Management LP, meanwhile, scrapped a nearly $1 billion deal to buy Tailwater Capital LLC's Goodnight Midstream LLC, which had previously targeted a $2 billion IPO.
"It is interesting that private-backed midstream firms ... are struggling a bit," Morningstar's Stephen Ellis wrote in an email. "The firms that are attempting to go public must really need the equity infusion. In other words, they might be too leveraged or struggling with a weaker than average outlook, which might simply create more roadblocks to going public."
