Energy Companies Announce US$7.5 Billion Merger

‘To deal successfully with a challenging and complicated market, sometimes simpler is better. Crestwood Equity Partners and Crestwood Midstream Partners are making a major change and streamlining their operations in order to improve their competitive position in the midstream oil and gas sector.

The two companies recently signed a definitive agreement to merge Crestwood’s corporate structure into a single publicly traded partnership with a consolidated enterprise value of approximately US$7.5 billion.

“By combining our partnerships and simplifying our corporate structure, we are better able to execute on our strategic objectives of fundamental value creation through providing first-class customer service and by executing on organic expansion and acquisition opportunities around our portfolio of midstream assets,” said Robert Phillips, Crestwood chairman, president and CEO in a statement.

Crestwood Midstream is a master limited partnership that owns and operates midstream businesses in multiple U.S. unconventional shale resource plays. The company is engaged in the gathering, processing, treating, compression, storage and transportation of natural gas; storage and transportation of natural gas liquids; and gathering, storage, and marketing of crude oil.

In contrast, Crestwood Equity Partners is a master limited partnership that owns the general partner interest, including the incentive distribution rights and approximately 4 % of the outstanding common units of Crestwood Midstream. In addition, the company’s operations include an NGL supply and logistics business that serves customers in the United States and Canada.

Following the completion of the merger, Crestwood Midstream will cease to be a publicly traded partnership but will survive as a wholly owned subsidiary of Crestwood Equity, and the incentive distribution rights of Crestwood Midstream will be permanently eliminated. Crestwood Holdings will continue to own the general partner of Crestwood Equity, which will continue to be listed on the NYSE under the ticker symbol CEQP.

“Through all market cycles, particularly during periods of challenging commodity price cycles like we are currently enduring, cost of capital remains a critical driver of competitive positioning in the marketplace,” Phillips said. “We have visibility to greater than US$3 billion of investment opportunities around our asset footprint largely focused on the majority of the premier shale plays in North America. The permanent elimination of our incentive distribution rights immediately improves our future cost of capital and better positions Crestwood to capture our share of the opportunities in front of us.”

The merger will help reduce corporate administrative costs. As a result of consolidating into a single public entity, Crestwood estimates, another US$5 million of incremental cost savings can be achieved and added to the US$25 million to US$30 million run-rate savings identified as a part of Crestwood’s 2015 cost reduction initiatives.

Andrews Kurth and Simpson Thacher & Bartlett acted as legal counsel to Crestwood, according to a recent press release. Locke Lord served as legal counsel to the Crestwood Equity Conflicts Committee. Paul Hastings served as legal counsel to the Crestwood Midstream Conflicts Committee.

Josh Wannarka, the Crestwood investor relations director, declined to comment about the merger. Elizabeth Suman, the media relations director, did not immediately return a call seeking comment.

Looking ahead, the transaction is expected to close in the third quarter of 2015. However, the merger will be subject to customary closing conditions, including approval of a majority of the unit-holders of Crestwood Midstream. –

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