Morgan Stanley Energy Partners Completes Sale of Durango Permian to Kinetik Holdings

Rhea-AI Summary

Morgan Stanley Energy Partners has completed the sale of Durango Permian to Kinetik Holdings. The transaction includes a mix of cash and equity, with additional payments contingent on the success of Durango Permian’s Kings Landing Gas Gathering and Processing Development. Durango Permian, a top player in gas gathering and processing in the Permian Basin, has been under Morgan Stanley’s management and achieved significant growth in New Mexico. The deal enhances Kinetik’s presence in the region, promising operational synergies and future growth, especially with the Kings Landing project. Financial advisors for Durango Midstream included Greenhill & Co. and Wells Fargo Securities, with Sidley Austin LLP as legal counsel.

Positive

• The sale of Durango Permian to Kinetik includes a combination of cash and equity, potentially providing liquidity and investment returns.
• Kinetik's acquisition of Durango Permian is expected to create significant operational synergies.
• The transaction strengthens Kinetik's presence in the New Mexico Permian Basin.
• The commissioning of Kings Landing supports future growth and stable earnings.

Negative

• Potential operational risks if Kings Landing Gas Gathering and Processing Development does not succeed.

Insights

Financial Analyst

Financial Implications: The acquisition of Durango Permian by Kinetik Holdings is strategically significant. The deal involves a mix of cash and equity, with additional contingent consideration tied to the successful commissioning of the Kings Landing project. This structure suggests that Kinetik Holdings sees significant future value in Durango's operations and is willing to share some risk and reward with the sellers.

Kinetik's diversification in acquiring Durango Permian will likely enhance its earnings stability through expanded gas gathering and processing capabilities in the Permian Basin. The potential synergies resulting from the combination of assets could lead to improved operational efficiencies and cost savings, enhancing overall profitability. Additionally, the focus on carbon dioxide sequestration aligns with increasing regulatory and market pressures to adopt greener practices, potentially offering long-term stability and growth opportunities.

Retail investors should pay attention to how Kinetik plans to integrate these assets and the financial performance of Kings Landing once commissioned. This development is key to realizing the full potential of the acquisition. Investors should also keep an eye on the financials and earnings reports from Kinetik in the coming quarters to assess the successful integration of Durango's assets.

Market Research Analyst

Market Position: The acquisition signifies a strategic move for Kinetik Holdings to strengthen its position in the midstream sector of the oil and gas industry. By acquiring Durango Permian’s assets, Kinetik is seeking to capture more market share within the Permian Basin, one of the most prolific oil and gas producing regions in the United States. The integration of these assets may allow Kinetik to offer more comprehensive services, thereby increasing its competitive edge against other midstream providers.

This acquisition, pending successful commissioning of Kings Landing, can significantly enhance Kinetik’s market proposition. The focus on gas gathering and carbon dioxide sequestration is particularly relevant given the ongoing transition towards cleaner energy sources and regulatory demands for reduced emissions. This strategic alignment with environmental priorities might attract more business from energy producers seeking environmentally responsible partners.

Retail investors should consider the broader market trends towards energy transition and how Kinetik’s enhanced capabilities might position it favorably in this evolving landscape. Monitoring industry trends and how competitors respond to such strategic moves can provide insights into Kinetik's future market position.

Legal Expert

Legal Considerations: The legal framework surrounding this acquisition is worth noting. The deal’s contingent consideration, particularly tied to the Kings Landing project, indicates a thorough legal structure to mitigate risks associated with the project’s commissioning. Such clauses protect both parties and reflect the detailed due diligence undertaken.

Sidley Austin LLP, acting as legal counsel, likely ensured compliance with all regulatory requirements, which is important given the environmental regulations around gas processing and CO2 sequestration. This legal oversight reduces potential risks of future legal entanglements that could arise from non-compliance or environmental issues.

Retail investors should appreciate the importance of this legal groundwork in ensuring the deal’s smooth execution and the mitigation of future risks. Understanding the legal framework helps in comprehending the long-term sustainability and risk management strategies of the acquisition.

NEW YORK--(BUSINESS WIRE)-- Investment funds managed by Morgan Stanley Energy Partners, announced today the closing of the sale of Durango Permian LLC (“Durango Permian” or the “Company”) to a subsidiary of Kinetik Holdings Inc. (“Kinetik”; NYSE: KNTK). Consideration for the Durango Permian sale includes a combination of cash and equity, including contingent consideration payable upon the successful commissioning of Durango Permian’s Kings Landing Gas Gathering and Processing Development (“Kings Landing”). Durango Permian, a subsidiary of Durango Midstream LLC (“Durango”), is a leading gas gathering, processing, and carbon dioxide (“CO2”) sequestration business operating in the Permian Basin of southeast New Mexico. Durango is majority-owned by funds managed by Morgan Stanley Energy Partners.

Commenting on the transaction, Richard Cargile, President and Chief Executive Officer of Durango, said: “Durango is excited to announce the completion of the sale of its Permian Basin assets to Kinetik. I am very proud of the dedication and tireless efforts of our employees as we have expanded our presence in New Mexico through two acquisitions and multiple growth projects in partnership with Morgan Stanley Energy Partners over the last five years. We share in Kinetik’s enthusiasm for the sustained growth potential of Durango’s operating region and for the Kings Landing project, which will provide a critical gas processing and treatment solution for the region’s producers. The Company’s assets are complementary to Kinetik’s existing operating footprint, expand Kinetik’s presence in New Mexico, and reinforce Kinetik’s value proposition as a pure-play midstream provider across the entire Delaware Basin. The combination of assets is expected to realize significant operating synergies and capture economies of scale benefits. The base business provides strong stable earnings and the commissioning of Kings Landing supports significant future growth in the area.”

John Moon, Managing Director and Head of Morgan Stanley Energy Partners, added: “Durango Permian was established with the vision of creating a best-in-class gas gathering and processing platform serving leading producers in the Permian Basin. Under the leadership of Rick Cargile and his team, we believe the Company has executed exceptionally well, and they have transformed the business into a leading independent midstream platform in the northern Delaware Basin. In this next chapter for Durango, we are excited to be partnered with Kinetik, which we believe is very well-positioned to capitalize on the substantial growth opportunities in New Mexico.”

Greenhill & Co., an affiliate of Mizuho, served as lead financial advisor to Durango Midstream. Wells Fargo Securities also served as financial advisor and lead technical advisor to Durango Midstream. Sidley Austin LLP served as legal counsel to Durango Midstream and Morgan Stanley Energy Partners.

About Morgan Stanley Energy Partners

Morgan Stanley Energy Partners, the energy-focused private equity business of Morgan Stanley Investment Management, is a leading energy private equity platform that makes privately negotiated equity and equity-related investments in energy companies located primarily in North America. Morgan Stanley Energy Partners pursues a differentiated investment strategy, focused on the buyout and build-up of strategically attractive, established energy businesses across the energy value chain in partnership with world-class management teams. For further information about Morgan Stanley Energy Partners, please visit www.morganstanley.com/im/energypartners.

About Durango Midstream

Headquartered in The Woodlands, Texas, Durango is a premier midstream gas gathering, processing, and CO2 sequestration business with assets strategically located in the Permian Basin and Midcontinent regions of the United States. The Company is led by Richard Cargile and is majority-owned by funds managed by Morgan Stanley Energy Partners. For further information about Durango, please visit www.durangomidstream.com

View source version on businesswire.com: https://www.businesswire.com/news/home/20240625205787/en/

Morgan Stanley Media Relations: [Alyson Barnes, 212.762.0514]

Source: Morgan Stanley Energy Partners

FAQ

What company acquired Durango Permian from Morgan Stanley Energy Partners?

Kinetik Holdings acquired Durango Permian from Morgan Stanley Energy Partners.

What does the acquisition of Durango Permian include?

The acquisition includes a mix of cash and equity, and contingent payments based on the success of Kings Landing Gas Gathering and Processing Development.

Why is the sale of Durango Permian important for Kinetik Holdings?

The sale enhances Kinetik Holdings' presence in the Permian Basin, promising operational synergies and significant future growth.

What is the Kings Landing project mentioned in the Morgan Stanley Energy Partners' PR?

Kings Landing is a Gas Gathering and Processing Development project, part of Durango Permian's assets, critical for future growth.

Who served as the financial advisors for Durango Midstream in the sale of Durango Permian?

Greenhill & Co. and Wells Fargo Securities served as financial advisors for Durango Midstream.