Trace Midstream Enters the Northern Delaware Basin With the Acquisition of LM Energy’s Natural Gas Gathering and Transportation Infrastructure

Rhea-AI Summary

Trace Midstream Partners II, , backed by Quantum Capital Group, has acquired LM Energy Delaware's natural gas gathering and transportation assets in the Northern Delaware Basin. The system, located in Eddy and Lea counties, New Mexico, includes high- and low-pressure gas pipelines with associated infrastructure. Upon completion of ongoing projects, the system will comprise 170 miles of pipeline and 12 compressor stations, with a total design capacity of 650 million cubic feet per day. The acquisition marks Trace's entry into the Northern Delaware Basin, addressing substantial natural gas midstream constraints in the region. The system has over 80,000 dedicated acres and is supported by long-term, fixed-fee contracts from multiple producers.

Positive

• Acquisition of LM Energy's assets expands Trace Midstream's presence into the Northern Delaware Basin
• System will have a total design capacity of 650 million cubic feet per day upon completion
• Over 80,000 dedicated acres supported by long-term, fixed-fee contracts from multiple producers
• Addresses substantial natural gas midstream constraints in the Northern Delaware region
• Trace's proven track record in developing and operating large-scale midstream infrastructure projects

Negative

• Potential integration challenges and costs associated with acquiring and expanding the existing infrastructure
• Ongoing construction projects may face delays or cost overruns
• Dependence on multiple producers' long-term contracts for revenue stability

Financial Analyst

This acquisition marks a significant strategic move for Trace Midstream, expanding its footprint into the lucrative Northern Delaware Basin. The deal includes 170 miles of pipeline and 12 compressor stations with a total design capacity of 650 million cubic feet per day. This infrastructure is important in a region facing substantial natural gas midstream constraints.

The system's 80,000+ dedicated acres and long-term, fixed-fee contracts from multiple producers provide a stable revenue stream, reducing risk for Trace. This acquisition positions Trace to capitalize on the growing demand for midstream services in the area, potentially leading to increased market share and revenue growth.

Trace's previous successful exit of assets for $1.5 billion demonstrates their ability to create value in the midstream sector. This new acquisition, backed by Quantum Capital, suggests a strong potential for future value creation and possible lucrative exit opportunities.

Energy Industry Expert

The Northern Delaware Basin is a hotspot for oil and gas production and this acquisition addresses a critical need for midstream infrastructure in the region. The system's capacity of 650 million cubic feet per day is substantial, indicating Trace's confidence in the basin's long-term production potential.

The high-pressure southern extension is particularly noteworthy, as it allows producers access to multiple processing outlets. This flexibility can alleviate local downstream constraints, potentially increasing the system's attractiveness to producers and its overall utilization rate.

The addition of Jack Harper, former Executive VP at ConocoPhillips, to Trace's board brings valuable upstream expertise. This could enhance Trace's ability to align its midstream strategy with producers' needs, potentially leading to more efficient operations and stronger customer relationships.

Market Research Analyst

This acquisition reflects the ongoing consolidation trend in the midstream sector, as companies seek to build scale and efficiency. Trace's entry into the Northern Delaware Basin diversifies its portfolio geographically, potentially reducing risk and opening new growth opportunities.

The transaction's timing is strategic, coinciding with a period of increased natural gas demand and rising energy prices. As the U.S. continues to expand its LNG export capabilities, midstream assets like these could become increasingly valuable.

However, investors should note the potential risks associated with the energy transition. While natural gas is often seen as a bridge fuel, long-term demand could be affected by accelerating renewable energy adoption. The fixed-fee contracts provide some insulation against short-term price volatility, but the long-term outlook for natural gas infrastructure investments remains uncertain.

• High- and low-pressure midstream system located in Eddy and Lea counties in New Mexico
• System includes both existing and new-build infrastructure which, upon completion, will consist of 170 miles of pipelines and 12 compressor stations
• New high-pressure southern extension allows producers access to multiple processing outlets, alleviating local downstream constraints

HOUSTON--(BUSINESS WIRE)-- Trace Midstream Partners II, LLC (“Trace”), a portfolio company of Quantum Capital Group (“Quantum”), announced today that it has entered into agreements with LM Energy Delaware, LLC (“LM Energy”), a portfolio company of Old Ironsides Energy, LLC (“Old Ironsides Energy”), to acquire its natural gas gathering and transportation assets in the Northern Delaware Basin.

Located in Eddy and Lea counties in New Mexico, LM Energy’s natural gas gathering and transportation system consists of high- and low-pressure gas pipelines with associated compression, dehydration, condensate handling, and vapor recovery capabilities. Currently, LM Energy is in the process of constructing multiple new compressor stations, new gathering pipelines, and a 20-inch diameter high-pressure transportation pipeline that will connect the existing gas gathering system to a number of gas processing facilities near Loving, New Mexico. Upon completion of these projects, the system will consist of approximately 170 miles of pipeline and 12 compressor stations, with a total design capacity of 650 million cubic feet per day. The system has over 80,000 dedicated acres and is supported by long-term, fixed-fee contracts from multiple producers.

“This acquisition marks a significant milestone for Trace as we enter the Northern Delaware Basin. We are excited to build upon LM Energy’s already well-executed system and track record of success,” said Josh Weber, Trace Chief Executive Officer. “With substantial natural gas midstream constraints across the Northern Delaware, we are committed to expanding LM Energy’s assets and providing additional services for the region’s producers.”

“I am sincerely grateful to our customers, whose success was our tailwind over the last five years. It was very important to us to find a successor who would continue to focus on customer service and facilitate our customers’ growth,” said Elliot Gerson, LM Energy Chief Executive Officer. “Trace is an excellent team who we know will execute, and we are excited to watch them take this business to the next level.”

“We are pleased to expand our longstanding partnership with the Trace team,” said Blake Webster, Partner with Quantum. “We are confident the commercial, operational, and project development capabilities of the Trace management team, combined with our financial support, will allow Trace to build a scalable natural gas infrastructure platform offering competitive midstream solutions to Delaware producers.”

Sean O’Neill, Managing Partner of Old Ironsides Energy, added “LM Energy was established to build a leading midstream platform designed around the needs of its customers and partners. I am incredibly proud of the LM team for executing its goals and developing this critical midstream solution for its world-class producer base in an area of great activity and infrastructure need. Congratulations to Quantum and the Trace team, who are well-positioned to continue growing this great asset.”

In connection with the transaction, Quantum Senior Advisor Jack Harper has joined the Trace Board of Directors. Prior to joining Quantum, Harper served as Executive Vice President, Lower 48 at ConocoPhillips (NYSE: COP) and was a member of its Executive Committee. Earlier in his career, Harper served in various executive roles at Concho Resources, including as President from 2017 to 2021, until the company merged with ConocoPhillips.

Formed in 2017, Trace Midstream has a proven track record of success in the development and operations of large-scale midstream infrastructure projects. In 2022, Trace successfully exited its previous midstream business with the sale of its Haynesville assets to Williams (NYSE: WMB) and its Mid-Continent assets to Energy Transfer (NYSE: ET) for a combined transaction value of approximately $1.5 billion.

Vinson & Elkins LLP represented Trace in the LM Energy acquisition. Piper Sandler and Co. and Kirkland & Ellis LLP represented LM Energy.

About Trace

Founded in 2017 and based in Houston, Trace and its affiliates are focused on developing and operating natural gas midstream assets and supporting carbon capture infrastructure across North America. Trace and its affiliates are supported by more than $420 million of equity capital commitments from Quantum, Climate Investment, and Trace management. For more information on Trace, please visit www.tracemidstream.com.

About LM Energy

LM Energy Holdings, LLC is a midstream oil and gas company based in Dallas, Texas. LM Energy is focused on operational excellence and creative solutions for its producer partners. For more information visit www.LMEnergyPartners.com.

About Quantum Capital Group

Founded in 1998, Quantum Capital Group (“QCG”) is a leading provider of private equity, credit, and venture capital to the global energy and energy transition industry, having managed together with its affiliates more than $27 billion in equity commitments since inception. For more information on QCG, please visit www.quantumcap.com.

About Old Ironsides Energy

Old Ironsides Energy, LLC is an energy-focused private equity firm that partners with experienced management teams to pursue upstream and midstream opportunities in North America. The firm has a history of creating value in the energy business through its private equity and drilling joint venture platforms. For more information on Old Ironsides Energy, please visit www.oldironsidesenergy.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240806418464/en/

Trace and LM Energy

Meredith Hargrove Howard

Redbird Communications Group

210-737-4478

meredith@redbirdpr.com

Quantum Capital Group

Kate Thompson / Erik Carlson / Madeline Jones

Joele Frank, Wilkinson Brimmer Katcher

212-355-4449

Source: Trace Midstream Partners II, LLC

FAQ

What assets did Trace Midstream acquire from LM Energy in the Northern Delaware Basin?

Trace Midstream acquired LM Energy's natural gas gathering and transportation assets in the Northern Delaware Basin, including high- and low-pressure gas pipelines with associated compression, dehydration, condensate handling, and vapor recovery capabilities.

How many miles of pipeline will the acquired system have upon completion?

Upon completion of ongoing projects, the acquired system will consist of approximately 170 miles of pipeline and 12 compressor stations.

What is the total design capacity of the acquired natural gas system?

The total design capacity of the acquired natural gas system will be 650 million cubic feet per day upon completion of ongoing projects.

How many dedicated acres does the acquired system have?

The acquired system has over 80,000 dedicated acres supported by long-term, fixed-fee contracts from multiple producers.

Who joined the Trace Board of Directors in connection with this transaction?

Jack Harper, Quantum Senior Advisor and former Executive Vice President at ConocoPhillips (COP), joined the Trace Board of Directors in connection with this transaction.