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Five midstream deals worth $14.7 billion keep pipeline M&A moving through an energy freeze
Pipeline buyers led by Williams and ONEOK paid about $14.7 billion in five midstream deals while upstream M&A largely stalled, Fortune reports. Most sellers are private equity firms getting their price from buyers betting on Gulf Coast LNG and data-center gas demand.
The Investor · Invest desk
What happened
- Brazos Midstream sold its Permian systems in two pieces for $6.02 billion combined: $4.42 billion from ONEOK and $1.6 billion from Western Midstream.
- Williams paid $5.5 billion for Momentum Midstream and its gathering and processing systems in Texas and Louisiana.
- On the oil side, Enbridge bought Tallgrass Energy's crude assets for $2.55 billion.
- Upstream has had no deal of comparable size since Devon Energy paid $26.5 billion for Coterra in early February, weeks before the Iran war began.
- A bipartisan infrastructure permitting reform bill was introduced in the Senate on Wednesday and could gain momentum before year-end, Fortune reports.
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Why it matters
- exposure If Gulf Coast LNG or data-center gas demand comes in short, the public companies that paid up for private systems hold the loss; the private equity sellers have already been paid.
- decision Devon has to find another buyer for its Eagle Ford assets to cut its Coterra debt after BP reportedly backed off, in a market where upstream buyers price conservatively.
- constraint Because the bill also expedites wind, solar and transmission projects that have faced opposition within the Trump administration, pipeline operators cannot count on it passing by year-end.
Fortune's Jordan Blum puts the wider freeze down to price. With the Middle East in conflict and oil and fuel prices high, sellers ask for more on inflated valuations while buyers price longer term and more conservatively [1][2]. Midstream is the main exception [3], and there the gap closed on the seller's terms. The deals "essentially all involve private equity firms selling high to public companies looking to build scale," Blum wrote [11].
The three deals he lists before turning to oil add up to $11.52 billion [1]. Adding Enbridge's crude purchase and Plains All American's $585 million for Silver Creek Midstream in Wyoming brings the five to about $14.66 billion [14][2]. That total is about 55% of Devon's single Coterra deal [4]. It is also 3.7 times the $4 billion Magnolia Oil & Gas paid for WildFire Energy, the largest upstream purchase since February [16][5].
Andrew Dittmar, principal analyst at Enverus Intelligence Research, gave the demand case. He said demand for infrastructure is high right now, particularly on the natural gas side, as LNG demand coming online on the Gulf Coast and rising data center demand reshape the U.S. gas market [4]. He expects more consolidation. "I think the market does favor larger, integrated midstream systems, and we're going to continue to see some of the smaller players, particularly on the private side, rolled up amid a considerable acquisition appetite from the large companies," Dittmar said [12].
If the Middle East conflict eases and oil prices fall, the upstream price gap could close and pull buyers back to production assets. A stalled Senate bill would cost midstream little, because the five deals were struck without it. Passage could work against acquisitions.
Fortune's view is that a permitting law "could further speed up dealmaking" [7]. The newsletter does not name the bill's sponsors or describe its provisions. I think the effect on acquisitions is weaker than that. Each deal Blum lists is a purchase of existing assets, and part of what a buyer pays for is pipe that needs no new permit. Faster permitting makes building a closer substitute for buying. That should lower what private sellers can ask. The counter-case is that quicker approvals for new lines to Gulf Coast export hubs would raise the value of the gathering systems feeding them. Private midstream sellers getting higher prices after a bill passes would show I am wrong.
What to watch
- Whether the Senate permitting bill gains momentum before year-end with its wind, solar and transmission provisions intact.
- Prices on the next private midstream sales after any permitting law passes; higher prices would cut against the view that faster permits weaken sellers.
- Any easing of the Middle East conflict and oil prices, the test of whether upstream buyers and sellers can agree on price again.