Tailwater Capital Announces Sale of Tall Oak Midstream III to Summit Midstream Corporation

Rhea-AI Summary

Tailwater Capital has announced an agreement to sell Tall Oak Midstream III to Summit Midstream (NYSE: SMC) for approximately $450 million. The deal includes $155 million in cash, about 7.5 million shares of SMC Class B common stock and Partnership common units (representing ~40% ownership), and up to $25 million in contingent cash. The transaction is expected to close in Q4 2024, subject to approvals. Tall Oak is a major gas gathering and processing system in the Arkoma Basin, with two 220 MMcf/d processing plants and extensive gathering lines. Upon closing, four Tailwater Capital-appointed directors will join Summit's Board.

Positive

• Acquisition of Tall Oak Midstream III for $450 million, expanding Summit's gas portfolio
• Tailwater Capital to gain approximately 40% ownership in the pro forma company
• Addition of two 220 MMcf/d natural gas processing plants and extensive gathering infrastructure
• Four Tailwater Capital-appointed directors to join Summit's Board, potentially influencing future strategies

Negative

• Significant cash outlay of $155 million for Summit Midstream
• Potential shareholder dilution due to issuance of approximately 7.5 million new shares
• Up to $25 million in additional contingent cash payments through March 31, 2026

Insights

Financial Analyst

This $450 million acquisition of Tall Oak Midstream III by Summit Midstream is a significant move in the midstream energy sector. The deal structure, combining $155 million in cash, stock and potential earnouts, allows Summit to conserve cash while giving Tailwater Capital a substantial stake in the combined entity.

The acquisition adds considerable assets to Summit's portfolio, including two 220 MMcf/d natural gas processing plants and an extensive gathering system. This expansion in the Arkoma Basin should enhance Summit's operational scale and efficiency, potentially leading to improved margins and cash flow.

For investors, the deal's impact is multifaceted. The 40% ownership stake for Tailwater and the addition of four board members suggest a strong belief in Summit's future prospects. However, the stock dilution and increased debt load will need to be balanced against the expected synergies and growth opportunities. The market's reaction will likely depend on how quickly Summit can integrate these assets and demonstrate improved financial performance.

Energy Industry Expert

This acquisition marks a strategic shift in the Arkoma Basin's competitive landscape. Tall Oak's assets significantly bolster Summit's presence in the region, potentially positioning them as a dominant player. The deal's structure, particularly the earnout component, aligns interests and incentivizes performance through 2026.

The Arkoma Basin, known for its natural gas reserves, has seen renewed interest due to improved drilling technologies and rising natural gas prices. Summit's expanded capacity could capitalize on potential production increases in the area. However, investors should monitor how this fits into broader energy transition trends and natural gas demand forecasts.

The continuation of the Tall Oak brand for future projects suggests Tailwater sees ongoing opportunities in the midstream sector. This could lead to further deals or expansions, potentially benefiting Summit shareholders if the partnership proves fruitful. Overall, this move consolidates assets in a key production region, which could enhance operational efficiency and bargaining power with upstream producers.

DALLAS, Oct. 1, 2024 /PRNewswire/ -- Tailwater Capital LLC ("Tailwater"), an energy and environmental infrastructure private equity firm, today announced that it has entered into definitive agreements with Summit Midstream Corporation (NYSE: SMC) ("Summit", "SMC" or the "Company") and its wholly owned subsidiary Summit Midstream Partners, LP (the "Partnership"), whereby Summit will acquire Tall Oak Midstream Operating, LLC and its subsidiaries (collectively, "Tall Oak" or "Tall Oak Midstream III") for a total consideration of approximately $450 million. Consideration is comprised of $155 million in cash, approximately 7.5 million shares of a combination of SMC Class B common stock and common units of the Partnership (in an Up-C structure), representing approximately 40% ownership in the pro forma company, and up to $25 million contingent consideration in cash over certain measurement periods through March 31, 2026.

The transaction is expected to close in the fourth quarter of 2024, subject to customary closing conditions, shareholder approval and regulatory approvals. Upon closing, four directors appointed by Tailwater Capital will serve on the pro forma Summit Board.

Tall Oak is a leading, large-scale gas gathering and processing system in the Arkoma Basin comprised of two 220 million cubic feet per day ("MMcf/d") natural gas processing plants and approximately 244 miles of low-pressure natural gas gathering lines, 167 miles of high-pressure natural gas gathering lines and 65,000 horsepower of field and plant compression.

"This transaction represents a unique opportunity to partner with the Summit organization to support the long-term growth and value creation initiatives already underway at the Company," said Jason Downie, Co-Founder and Managing Partner at Tailwater. "The Tall Oak assets are complementary to Summit's existing gas portfolio, and we believe the Company is well positioned to drive even more value for shareholders over the coming years."

"Our entire Tall Oak team has done an exceptional job delivering high-quality service while prioritizing reliability and safety, and I am confident that the Summit team will continue to execute and capitalize on new and exciting opportunities in the Arkoma Basin," said Ryan Lewellyn, President and Chief Executive Officer at Tall Oak Midstream. "Tailwater has been an invaluable partner for our business, and we are excited to continue to work with Tailwater, not only on the transition of Tall Oak to Summit but also on future potential projects under the Tall Oak name."

Advisors
TPH&Co., the energy business of Perella Weinberg Partners, served as exclusive financial advisor to Tailwater Capital. Kirkland & Ellis LLP served as legal advisor to Tall Oak Midstream and Tailwater Capital. Guggenheim Securities, LLC served as financial advisor and Locke Lord LLP served as legal advisor to Summit.

About Tailwater Capital
Dallas-based Tailwater Capital is an energy and growth infrastructure private equity firm with a well-established track record of working constructively with proven management teams to deliver value-added solutions. Tailwater has raised more than $4.7 billion in committed capital since inception and the team has executed more than 180 transactions representing over $26 billion in value. For more information, please visit www.tailwatercapital.com.

About Tall Oak Midstream III
The Tall Oak Midstream assets, located in central Oklahoma, are comprised of two 220 MMcf/d natural gas processing plants, approximately 244 miles of low-pressure natural gas gathering lines, approximately 167 miles of high-pressure natural gas gathering lines and approximately 65,000 horsepower of field and plant compression. The gathering agreements for the Tall Oak system include long-term, fee-based contracts with a weighted average term of approximately 13 years. Volume throughput on the Tall Oak system is underpinned by acreage dedications, with an estimated 315,000 leased acres from its key customers. The dedicated acreage spans highly productive, rich gas areas within the Arkoma Basin, with producers primarily targeting the Woodford formation.

About Summit Midstream Corporation 
SMC is a value-driven corporation focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in the core producing areas of unconventional resource basins, primarily shale formations, in the continental United States. SMC provides natural gas, crude oil and produced water gathering, processing and transportation services pursuant to primarily long-term, fee-based agreements with customers and counterparties in four unconventional resource basins: (i) the Williston Basin, which includes the Bakken and Three Forks shale formations in North Dakota; (ii) the Denver-Julesburg Basin, which includes the Niobrara and Codell shale formations in Colorado and Wyoming; (iii) the Fort Worth Basin, which includes the Barnett Shale formation in Texas; and (iv) the Piceance Basin, which includes the Mesaverde formation as well as the Mancos and Niobrara shale formations in Colorado. SMC has an equity method investment in Double E Pipeline, LLC, which provides interstate natural gas transportation service from multiple receipt points in the Delaware Basin to various delivery points in and around the Waha Hub in Texas. SMC is headquartered in Houston, Texas.

Contacts

Jill McMillan
Managing Director, Communications & Public Affairs
Phone: 214-489-7047
Email: jmcmillan@tailwatercapital.com

John Schaufele
Managing Director, Investor Relations & Fundraising
Phone: 214-489-7043
Email: jschaufele@tailwatercapital.com

View original content to download multimedia:https://www.prnewswire.com/news-releases/tailwater-capital-announces-sale-of-tall-oak-midstream-iii-to-summit-midstream-corporation-302264801.html

SOURCE Tailwater Capital

FAQ

What is the total value of Summit Midstream 's (SMC) acquisition of Tall Oak Midstream III?

Summit Midstream (SMC) is acquiring Tall Oak Midstream III for a total consideration of approximately $450 million.

How much cash is Summit Midstream (SMC) paying for Tall Oak Midstream III?

Summit Midstream (SMC) is paying $155 million in cash as part of the acquisition, with an additional contingent cash payment of up to $25 million through March 31, 2026.

What percentage ownership will Tailwater Capital have in Summit Midstream (SMC) after the acquisition?

Tailwater Capital will gain approximately 40% ownership in the pro forma Summit Midstream (SMC) through the acquisition deal.

When is the acquisition of Tall Oak Midstream III by Summit Midstream (SMC) expected to close?

The acquisition is expected to close in the fourth quarter of 2024, subject to customary closing conditions, shareholder approval, and regulatory approvals.