Enterprise Products Partners L.P. announced Wednesday an agreement to buy Delaware Basin player Piñon Midstream LLC for $950 million in cash.
“Piñon Midstream provides natural gas gathering and treating services in the core of the prolific eastern flank of the Delaware Basin in New Mexico and Texas”, Enterprise said in a statement.
Piñon Midstream, a company of Black Bay Energy Capital, owns about 50 miles of natural gas gathering and redelivery pipelines and five three-stage compressor stations. It also owns hydrogen sulfide and carbon dioxide treating facilities with a collective capacity of 270 million cubic feet a day (MMcfd), with an expansion to 450 MMcfd expected to be completed in the latter half of 2025.
Houston, Texas-based Enterprise noted it would take over fee-based contracts with long-term volume commitments under the debt-free acquisition.
It would also acquire two of the biggest and deepest acid gas injection (AGI) wells in the basin with the transaction. “As part of this transaction, Enterprise is evaluating locations for a third injection well that would support up to 750 MMcf/d of total treating capacity”, the statement said.
Enterprise indicated it plans to proceed with Piñon Midstream’s plan to store carbon dioxide (CO2) in the two wells. Piñon Midstream, also based in Houston, earlier received approval from the Energy Protection Agency for its plan for the permanent sequestration project at its Dark Horse Treating Facility in Lea County, New Mexico.
“The two AGI wells are permitted for a combined 20 million cubic feet per day of CO2 and hydrogen sulfide injection, which equates to ~250,000 metric tons of CO2 and ~110,000 MT of H2S annually based on current gas compositions”, Piñon Midstream said in a press release June 18. “These two wells provide sequestration redundancy for Delaware Basin operators who use Piñon’s scalable and centralized treatment and sequestration facility to mitigate flaring and unlock valuable drilling inventory in the area”.
Enterprise estimates that Piñon Midstream’s area has over 7,500 remaining potential wells with access to at least six geologic production benches.
“Drilling activity in this area has generally been restricted due to the lack of sour natural gas treating and acid gas injection well capacity as well as the lengthy permitting process for acid gas injection wells which can take up to two years”, it said.
“We believe the Piñon management team has developed the premier sour natural gas treating system in the Delaware Basin”, said A.J. Teague, co-chief executive of Enterprise’s general partner, Enterprise Products Holdings LLC. “These assets accelerate our entry into this region by at least three or four years.
“These assets are highly complementary to our midstream energy system and provide us an excellent entry point into the eastern flank of the Delaware Basin for us to expand our natural gas processing footprint. Our entry will provide producers a choice for reliable and value-added processing services”.
Teague added, “We believe this acquisition will generate distributable cash flow accretion of $0.03 per unit in 2025, our first full year of ownership, before considering the benefit of any commercial and operating synergies”.
Michael LeBourgeois, managing partner at Black Bay, said, “Black Bay has a history of partnering with talented entrepreneurs to build best-in-class businesses, such as Piñon Midstream, and also positioning them as strategic acquisition candidates for larger acquirers seeking growth opportunities”.
Enterprise expects to complete the transaction by the end of the year. It plans to use both cash on hand and borrowings to fund the acquisition.
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