Energy industry at top of June M&A transactions

July 13, 2021

July 13, 2021 By: G. F. Gay Le Breton and Ryan Gerton

Aided by the recovery of oil prices since their descent into negative territory in April 2020, Louisiana’s energy industry has seen a 50% jump in merger and acquisition activity in the first six months of 2021, increasing to 12 from eight transactions in the same period of 2020.

June saw six of those transactions, including the announcement by Southwestern Energy Company of its plan to buy Indigo Natural Resources at a price tag of $2.7 billion.

Indigo Natural Resources, the third-largest private natural gas producer in the United States, will add 149,000 acres and 1,000 well sites in the Haynesville and Bossier shale plays in northwest Louisiana to Southwestern’s portfolio and grant them easy access to terminals along the Gulf Coast in order to serve the growing LNG market. Southwestern’s core business is natural gas exploration and production across 786,000 acres in the Marcellus shale play in the Appalachian basin.

Indigo is an attractive target for Southwestern, with the capacity to produce an estimated 1 billion cubic feet of natural gas per day from 3.1 trillion cubic feet in proven reserves.  According to the buyer, the deal will be an accretive transaction, expected to boost its 2022 profit margins by 12% and accelerate delivery of a sustainable leverage ratio below 2.0x in 2021 progressing to 1.7x in 2022. The transaction is expected to close in the fourth quarter of 2021.

The acquisition of Indigo comes during a run of consolidations across the energy industry, with companies partnering up in order to weather an array of market drivers.  Even though energy markets have stabilized as the economy recovers, players and assets often still outpace demand. Energy transition momentum and environmental, social and governance (ESG) issues are additional influences.

Also in June, Houston-based Stabilis Solutions, Inc. acquired the Port Allen liquid natural gas plant owned by HR Nu Blu Energy LLC. Responding to the growing clean energy needs of its customers, this transaction will allow Stabilis to increase its daily production capacity by approximately 30%. The buyer was attracted by the plant’s strategic placement near America’s largest LNG-powered offshore services fleet based out of Port Fourchon. Stabilis specializes in energy transition services, including LNG and hydrogen fueling solutions. Terms of the deal were not disclosed.

On the financing side, local private equity firm Black Bay Energy Capital successfully exited its investment in Total Operations and Services LLC, a Midland, Texas-based provider of low-emission gas compression services in the Permian Basin, for an undisclosed price. The buyer of their majority interest was asset management giant Apollo Global Management, Inc., which viewed the deal as an opportunity to capture growing industry demand for emissions reduction and electrification of production equipment. The deal comes almost two years after Black Bay acquired the interest for an undisclosed price.

In the midstream space, Empire Midstream LLC (formerly Empire Pipeline, LLC) purchased the Auger 12 pipeline assets of Pecten Midstream LLC for an undisclosed price. The 33-mile run is located in the deep Louisiana Gulf and connects the Enchilada Platform with the Eugene Island Pipeline System. While the pipeline is currently shut in, Empire expects to restart operations in September. The deal comes about a year after Empire’s acquisition of the Gibson crude oil terminal in June 2020. Pecten is a subsidiary of Shell Midstream Partners LLC.

Another June energy services deal was Petroleum Services Group’s purchase of Lake Charles-based Prokar, Inc. Prokar is a leading provider of on-site railroad repair, maintenance and inspection services for petrochemical and refining companies in Texas and Louisiana. Baton Rouge-based Petroleum Services, a portfolio company of Aurora Capital Partners, is a 70-year veteran in the product handling and logistics industry and saw Prokar as an opportunity to meet its clients’ needs for safe and efficient railcar services. Terms of the deal were not disclosed.

Finally, in the oilfield services space, specialty geological services provider Stratagraph, Inc. purchased Oklahoma-based Technical Drilling Services, Inc. in an effort to grow its mud logging fleet, expand its footprint, scale up its offerings and strengthen its financial position. Terms of this June deal were not disclosed, but Scott-based Stratagraph says this is the largest acquisition its 60-year history.

G.F. Gay Le Breton is managing director for Chaffe & Associates Inc., responsible for the merger and acquisition activities of the firm. Ryan Gerton is financial analyst for the firm.