Energy Transfer to buy Crestwood for $7.1bn in latest US pipeline deal

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US pipeline group Energy Transfer is set to buy rival Crestwood Equity Partners in a $7.1bn deal, the latest merger in the North American fuel infrastructure business as building new projects becomes more difficult.

The all-equity transaction would enable Energy Transfer — headed by Texas billionaire and Republican donor Kelcy Warren — to further expand its 125,000-mile network of oil and gas pipelines, already among the largest on the continent.

The so-called midstream energy sector has been engaged in a flurry of transactions as efforts to add pipeline capacity runs into opposition. Besides local landowners, environmental activists have sought to block new infrastructure that locks in reliance on fossil fuels.

Gas pipeline giant Oneok in May announced an $18.8bn deal to buy oil-focused Magellan Midstream Partners, though the takeover has faced some pushback from big shareholders. 

TC Energy said last month it would spin off its oil pipeline business two years after its plan to build the Keystone XL pipeline to carry crude south from Canada’s Alberta province was halted when US President Joe Biden pulled a crucial permit. 

Among the assets Energy Transfer operates is the Dakota Access crude oil pipeline, a target of staunch activist resistance before it finally connected North Dakota’s Bakken shale region to energy markets in 2017.

Energy Transfer’s growth has already been boosted by acquisitions: it announced the purchase of Permian Basin operator Lotus Midstream for $1.5bn in March, and in 2021 it snapped up Enable Midstream Partners for $7.2bn, among other deals.

Under the transaction announced on Wednesday, Crestwood shareholders would take a 6.5 per cent stake in Energy Transfer. The $7.1bn value of the deal includes $3.3bn in debt to be assumed by Energy Transfer. 

“Scale is important — I think everybody that’s involved in the business knows how important scale is,” said Robert Phillips, Crestwood chief executive, on a call with analysts on Wednesday. “The synergies I think are obvious any time you combine two companies like this.”

The deal will grow Energy Transfer’s position in the prolific Permian Basin oil and gasfields, which stretch across Texas and New Mexico, as well as the Bakken. It will also give Energy Transfer a foothold in Wyoming’s Powder River Basin. The company expects to save about $40mn in annual costs from the deal.

Energy Transfer said the new assets would allow it to funnel more hydrocarbons to its storage and processing facilities at Mont Belvieu, Texas, and to its export facilities at Nederland, Texas, and Marcus Hook, Pennsylvania. 

Energy Transfer shares rose 2 per cent in early trading on Wednesday. Shares in Crestwood gained 3 per cent.

“We view the deal as neutral for [Energy Transfer] as it expands its footprint in the Williston [Bakken] and Permian basins and adds the Powder River Basin,” said Elvira Scotto, an analyst at RBC Capital Markets, adding that shares were “likely to underperform given the all-equity deal”.