The majority of Midstream activity continues to focus on Permian assets where a transaction this week may have set the high watermark for midstream valuations. With the rig count reaching it's highest level since April 2015, MLPs are looking to add Permian exposure to offset expected weakness from other basins. As the EIA forecast below illustrates, which assumes crude at $109/bbl by 2040, the Permian is expected to increase and sustain production at a faster pace than the rest of the US.
NuStar Energy LP made a significant, and potentially transformational, $1.475B acquisition of Navigator Energy Services, the owner of the Big Spring Gateway System, a Permian based set of pipeline, gathering and storage assets, which commenced operations in September 2015. First Reserve paid $250MM in late 2014 to acquire Navigator Energy, realizing a 6x return on their investment. NuStar, which expects to close the transaction in May using debt and equity financing, did not provide any EBITDA guidance on the acquisition other than to state that the transaction will results in a "high single digit multiple as volumes ramp up over time". Some Analysts have speculated that NuStar paid 15x 2018 EBITDA for the assets. NuStar launched a 12.5MM unit offering at a steep 10% discount, Sponsor NuStar GP Holdings waived up to $22MM of incremental IDR payments over the next 2.5 years, to mitigate the high cost of capital,. Arguably the Sponsor will provide no real benefit to the transaction which will be financed entirely by the LP's, but yet will receive IDR payments commencing in 2020.
NuStar also took the opportunity to pre-release their Q1 results, highlighting weaker performance from their existing Eagle Ford assets. Midpoint DCF for Q1 is expected to be $104MM and Net Income $58MM, similar to Q1 2016, in spite of a $93MM acquisition completed in October 2016 and $500MM of capital expenditures.
Recent Insider Transactions
Insiders have been purchasing less units since the beginning of the year with the following transactions disclosed this past week
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1 . High Risk of Distribution Cut
2 . Distribution At Risk
3 . No Risk of Distribution Cut
4 . No Risk of Distribution Cut; Growth at Risk
5 . No Risk of Distribution Cut; Strong Growth