Apache, KAAC to form $3.5-billion pure-play Permian midstream C-corp

Apache Corp. will contribute its midstream assets at Alpine High to Altus Midstream LP, a partnership jointly owned by Apache and Kayne Anderson Acquisition Corp. (KAAC). At closing, KAAC will be renamed Altus Midstream Co., a C-corporation anchored by substantially all of Apache's gathering, processing, and transportation assets at Alpine High in the Delaware basin.

“Alpine High contains more than 5,000 feet of vertical hydrocarbon bearing formations across approximately 340,000 contiguous net acres,” said John Christmann IV, chief executive officer and president of Apache (OGJ Online, Sept. 7, 2016).

Altus Midstream expects to have more than $900 million of cash and no debt at closing and is projected to be free-cash-flow positive by 2021, said Brian Freed, Apache’s senior vice-president, midstream and marketing, giving the company “substantial borrowing capacity” to accommodate growth plans.

Assets for the new company include rich-gas processing plants with inlet capacity of 380 MMcfd, lean-gas treating and compression plants with inlet capacity of 400 MMcfd, 123 miles of gathering pipelines, and 55 miles of processed gas pipelines with three market connections. By the end of 2020, Altus Midstream plans to add 1 bcfd of cryogenic, rich-gas processing.

Additionally, Altus Midstream will hold options to purchase equity ownership in five planned pipelines, including:

• Gulf Coast Express: Option for up to 15% interest in a natural gas pipeline to Agua Dulce; operated by Kinder Morgan, expected in-service date in October 2019.

• Salt Creek NGL Line: Option for 50% interest in an NGL header from Alpine High to Waha; operated by Salt Creek Midstream, expected in-service date in the first quarter of 2019.

• EPIC Crude: Option for up to 15% interest in a crude oil pipeline to Corpus Christi; operated by EPIC Midstream Holdings, expected in-service date in the second half of 2019.

• Shin Oak: Option for up to 33% interest in a long-haul NGL line to Mont Belvieu; operated by Enterprise Products Partners, expected in-service date in the second-quarter 2019.

• Permian Highway: Option for up to 33% interest in a proposed natural gas pipeline to Katy/Agua Dulce (subject to agreement on definitive documentation); to be operated by Kinder Morgan, expected in-service date in late 2020.

Funding

Altus Midstream will have an estimated market capitalization of $3.5 billion at formation, assuming 354.4 million common shares outstanding at a $10 share price. Apache will receive 251.9 million shares and own 71.1% of Altus Midstream. KAAC is contributing $952 million in cash, which comprises $380 million in proceeds raised in its initial public offering and $572 million in proceeds raised in a private placement of Class A shares. Apache could earn an additional 37.5 million shares over five years if share price and operational thresholds are met.

The transaction funds Apache’s projected fourth-quarter Alpine High midstream capital spend of $170 million and provides future midstream capital funding for the asset, Apache said.

Upon closing, expected in this year’s fourth quarter, Apache will agree to provide construction, operations, and maintenance services for the new company where Freed will become chief executive officer.

Contact Mikaila Adams at [email protected].