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Targa targets Saddle Butte's Bakken Shale

by Claire Poole In Houston  |  Published November 15, 2012 at 11:25 AM
In a hot market for oil and gas infrastructure assets, Targa Resources Partners LP of Houston said Thursday, Nov. 15, it agreed to buy a Williston Basin crude oil pipeline and terminal system and natural gas gathering and processing operations in North Dakota from Yorktown Energy Partners LLC-backed Saddle Butte Pipeline LLC of Durango, Colo., for $950 million in cash.

In a separate statement, Targa said it plans to pay for the deal with proceeds from a public offering of 9.5 million units representing limited partner interests with a 30-day option to purchase up to 1.425 million more units. Bank of America Merrill Lynch, Barclays plc, Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley, UBS Investment Bank, Wells Fargo Securities LLC and RBC Capital Markets LLC are the bookrunning managers.

The deal is expected to close in the fourth quarter if approved by regulators.

The assets are in McKenzie, Dunn, and Mountrail counties in what Targa calls the heart of the oil-rich Bakken Shale play, which is the biggest oil-producing area in the U.S. after Texas, whose output is expected to double in three years.

The business includes 155 miles of crude oil pipelines, crude oil operational storage capacity of 70,000 barrels, including the Johnsons Corner Terminal with 20,000 barrels of storage capacity that is expanding to 40,000 barrels, and the Alexander Terminal with storage capacity of 30,000 barrels. The business also includes 95 miles of natural gas gathering pipelines and a 20 million cubic feet per day natural gas processing plant with an expansion under way to boost capacity to 40 million cubic feet per day. The operations are backed by producer dedications under long-term contracts that include 260,000 acres of crude oil production and 100,000 acres of natural gas production. Targa expects to spend $250 million next year to expand the system to meet producer activity.

Targa CEO Joe Bob Perkins said in a statement that the acquisition complements its assets, extends its footprint to the attractive Bakken Shale play, further diversifies its business with the addition of crude oil gathering and adds significant long-term growth in fee-based revenues.

"We are very excited to expand our geographic footprint into one of the most important oil-producing basins in the country," he said. "The visible, long-term growth potential of this business complements our attractive portfolio of ongoing and future organic growth projects and enhances the partnership's longer-term distribution growth."

Targa expects to fund the acquisition and growth capital expenditures while keeping its balance sheet at 50% debt and 50% equity. It said current liquidity pro forma for the October offering of 5.25% senior notes due 2023 and redemption of the 8.25% senior notes due 2016 is more than $1.1 billion.

Targa expects the acquisition will contribute 10% to 15% of Ebitda to its guidance for next year and with the acquisition expects to maintain its distribution per unit guidance of 10% to 12% growth this year but boost it in 2014 with increasing accretion after that.

Evercore Partners Inc.'s Rob Pacha, Jerry Smith, Guillermo Sierra, Eduard Freydel, Craig Borque and Chris Partridge and Vinson & Elkins LLP's Chris Collins advised Targa on the acquisition.

Thompson & Knight LLP's Arthur Wright represented Saddle Butte. Vinson & Elkins' Collins, David Oelman and Thomas Zentner assisted Targa on the offering, while Doug Rayburn at Baker Botts LLP counseled the underwriters.

Tags: Alexander Terminal | Baker Botts LLP | Bakken Shale | Bank of America Merrill Lynch | Barclays plc | Citigroup Inc. | Evercore Partners Inc. | Joe Bob Perkins | Johnsons Corner Terminal | JPMorgan Chase & Co. | Morgan Stanley | RBC Capital Markets LLC | Saddle Butte Pipeline LLC | Targa Resources Partners LP | Thompson & Knight LLP | UBS Investment Bank | Vinson & Elkins LLP | Wells Fargo Securities LLC | Williston Basin | Yorktown Energy Partners LLC

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Claire Poole

Senior Writer: Energy

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