Crestwood Equity Partners LP and Crestwood Midstream Partners LP announced today that Crestwood Equity has entered into definitive agreements to sell 100% of the membership interest in Tres Palacios Gas Storage LLC to a newly formed joint venture between Crestwood Midstream and an affiliate of Brookfield Infrastructure Group for total cash consideration of $130 million.
Brookfield Infrastructure will own 49.99% of Tres Palacios Holdings LLC. Crestwood Midstream will own the rest and be the operator of Tres Palacios and its assets. The transaction is expected to close in early December 2014.
Brookfield Infrastructure is a global owner and operator of high quality long-lived infrastructure assets in the areas of utilities, transportation and energy. Brookfield Infrastructure's North American energy platform includes approximately 15,500 km of natural gas transmission pipelines and 300 billion cubic feet (Bcf) of natural gas storage including its recently announced acquisition of the Lodi Natural Gas Storage facility in California.
As a part of the transaction, Brookfield Infrastructure is entering into five-year, fixed-fee contracts with Tres Palacios for 15 Bcf of firm storage capacity and 150,000 dekatherms per day of enhanced interruptible wheeling services beginning November 2014. The contracts will provide Tres Palacios with incremental annual firm revenues of approximately $16 million per year.
Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood's general partners, said:
"We are pleased to announce this strategic partnership with Brookfield Infrastructure and the sale of Tres Palacios to TPH LLC. Tres Palacios will immediately benefit as a result of the new long-term contract with Brookfield Infrastructure that will substantially increase the utilization of its available storage capacity. In addition, the strong financial resources from the Crestwood Midstream and Brookfield Infrastructure joint venture significantly enhances Tres Palacios' ability to participate in future expansion opportunities along the Texas Gulf Coast region to serve anticipated natural gas demand growth associated with LNG export facilities, exports to Mexico, and local power generation and industrial markets. We look forward to completing the transaction and working closely with Brookfield Infrastructure as a partner, which has a superior reputation of developing world-class infrastructure investments."
The Tres Palacios natural gas storage facility is regulated by the Federal Energy Regulatory Commission (FERC). The facility has the capacity to store up to 38.4 Bcf of natural gas and provides more than 1.0 Bcf per day of injection and withdrawal capability. The high performance, multi-cycle storage facility has an approximately 60-mile bidirectional pipeline system with 10 pipeline interconnects and associated facilities. The Tres Palacios assets are located in Matagorda, Wharton, and Colorado Counties, Texas. The new joint venture will not impact Tres Palacios' previously filed application with the FERC to reduce certificated working gas storage capacity. Tres Palacios continues to expect a favorable ruling on the application by FERC.
Crestwood Midstream expects to initially fund its $65 million portion of the purchase price utilizing its $1.0 billion revolving credit facility. Crestwood Midstream has approximately $125 million of remaining committed preferred equity available to be issued under its June 2014 equity agreement.
Crestwood Equity will use the net sale proceeds to repay $130 million of loans outstanding under its revolving credit facility and reduce its loan commitments thereunder by an equal amount, which will result in Crestwood Equityhaving an aggregate borrowing capacity of $495 million under its credit agreement.
Robert G. Phillips added:
"This transaction is an important step in executing our strategy to establish Crestwood Equity as a pure-play general partner MLP. With the sale of Tres Palacios to a Crestwood Midstream joint venture, Crestwood Equity will continue to benefit from cash flow growth of the underlying assets through its ownership of the incentive distribution rights of Crestwood Midstream. In addition, the transaction will enable Crestwood Equity to reduce debt and improve its distribution coverage and leverage ratios, and to further diversify Crestwood Midstream's portfolio of shale-based midstream assets with long-term fee-based contracts."