On Monday, Energy Transfer LP (ET.N) announced its intention to acquire pipeline operator Lotus Midstream in a significant $1.45 billion cash-and-stock deal. This strategic move is designed to bolster Energy Transfer’s pipeline portfolio within the U.S. Permian Basin, an area rich in oil and gas resources.
The terms of the acquisition stipulate that Energy Transfer will pay $900 million in cash, with the balance covered by 44.5 million freshly issued shares. This development was met with optimism in the market, as evidenced by a 1.03% rise in the company’s shares during premarket trading.
The transaction, scheduled to be completed in the second quarter of 2023, is expected to provide an immediate boost to Energy Transfer’s free cash flow and distributable cash flow per unit.
With a capacity of nearly 1.5 million barrels per day, the pipelines involved in this acquisition span the major production areas of the Permian Basin. This deal will further extend Energy Transfer’s reach by adding 3,000 miles of crude gathering and transportation pipelines to its extensive network.
In addition, the agreement will increase Energy Transfer’s storage capacity in Midland, Texas by 2 million barrels, enabling the company to better serve its clientele and capitalize on regional opportunities.
As a noteworthy component of the deal, Energy Transfer will also secure a 5% equity interest in the Wink to Webster Pipeline. This 650-mile system plays a crucial role in transporting over one million barrels of crude oil and condensate per day from the prolific Permian Basin to the strategically vital Gulf Coast. This acquisition underscores the continued importance of energy infrastructure investments in the United States.