Apache and Kayne Agrees to Create Altus Midstream Company

Apache and Kayne Agrees to Create Altus Midstream Company

Apache Corporation and Kayne Anderson Acquisition Corp. Announce Agreement to Create Altus Midstream Company, a $3.5 Billion Pure-Play, Permian Basin Midstream C-Corp; Companies to Co-Host Conference Call to Discuss Transaction at 4 PM Central Time Aug. 8

  • Anchored by Apache’s gathering, processing and transportation assets at Alpine High, Altus Midstream will be a publicly traded, pure-play, Permian Basin midstream C-corp.
  • Altus Midstream will also own options for equity participation in five planned pipelines from the Permian Basin to various points along the Texas Gulf Coast.
  • Kayne Anderson Acquisition Corp. 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.
  • The new company will have no debt at closing and cash on-hand will be used to fund ongoing midstream investments.
  • Gross volumes projected to approach more than 1 billion cubic feet (Bcf) per day of gas, producing approximately 100,000 barrels per day of NGLs by the end of 2020.  
  • Long-term growth opportunities for Altus Midstream driven by Alpine High upstream development, investments in long-haul pipelines and third-party gathering and processing volumes.
  • Apache will own approximately 71 percent of Altus Midstream with the ability to increase to approximately 74 percent subject to performance earn outs.
  • Upon expected closing of the transaction in the fourth quarter of 2018, Kayne Anderson Acquisition Corp. will change its name to Altus Midstream Company.            

HOUSTON, — Apache Corporation (NYSE, NASDAQ: APA) and Kayne Anderson Acquisition Corp. (NASDAQ: KAAC, KAACU, KAACW) have announced an agreement pursuant to which Apache will contribute its midstream assets at Alpine High to Altus Midstream LP, a partnership jointly owned by Apache and KAAC. At closing, KAAC will be renamed Altus Midstream Company (together with Altus Midstream LP, “Altus Midstream” or the “company”). Altus Midstream will be structured as a C-corporation anchored by substantially all of Apache’s gathering, processing and transportation assets at Alpine High, a world-class, unconventional resource play in the Delaware Basin. The company will also own options for equity participation in five gas, NGL and crude oil pipeline projects from the Permian Basin to various points along the Texas Gulf Coast.

“The transaction with Kayne Anderson Acquisition Corp. creates a premier midstream enterprise to service Alpine High, an enormous, highly economic upstream resource base in the Permian Basin, the most active oil and gas region in the world. 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.

“For Apache, this is a very strategic transaction with a world-class partner at an attractive valuation. Since our discovery of Alpine High, we have invested nearly $1 billion in an extensive network of fit-for-purpose infrastructure to meet the current and future processing and transport needs of the play. Today’s announcement is a strong endorsement of the quality of investment we have made to date.

“This transaction facilitates the allocation of Apache’s capital to the development of the vast Alpine High upstream resource base. In turn, focused capital development in the upstream should bring significant growth to Altus Midstream for many years to come,” concluded Christmann.

Kevin McCarthy, chairman of the board of directors of KAAC, stated, “We are very excited to partner with Apache to form Altus Midstream. This transaction fits all the criteria we outlined at the time of KAAC’s initial public offering and creates a pure-play, Permian-focused midstream C-corp. We believe investors will appreciate the clear alignment of interests between Altus Midstream and Apache as well as the company’s investor-friendly structure. Altus Midstream does not have incentive distribution rights and is well positioned to execute on its growth plans. We look forward to working with our partners to create value for Altus Midstream’s shareholders.”

Brian Freed, Apache’s senior vice president, Midstream and Marketing, who will become the chief executive officer of the new company, said, “We are launching Altus Midstream with the support and financial strength of Apache and Kayne Anderson, two highly respected industry leaders. We have a strong growth platform at Alpine High with a large, contiguous acreage dedication in a proven play, infrastructure in-place to accommodate a significant ramp in volume, and options for equity participation in five planned pipelines that will provide connectivity from the Permian Basin to the Texas Gulf Coast.

“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. With this strong financial position, the company will have substantial borrowing capacity to accommodate its growth plans. We see great opportunities to expand our asset base in Alpine High, in surrounding areas of the Delaware Basin, and elsewhere in the Permian Basin.  We will have the financial capacity to expand our footprint both in terms of our physical asset base as well as the ability to access volumes from third-party operators outside of Alpine High,” concluded Freed.

Altus Midstream assets

The Altus Midstream assets include rich-gas processing plants with inlet capacity of 380 million cubic feet (MMcf) per day, lean-gas treating and compression plants with inlet capacity of 400 MMcf per day, 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 Bcf per day 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 percent 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 percent 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 percent 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 percent 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 percent 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.

Other transaction details

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 percent of Altus Midstream. KAAC will contribute approximately $952 million in cash at formation, which is composed of proceeds from KAAC’s initial public offering of $380 million and proceeds from the private placement of Class A shares of $572 million. These proceeds (net of transaction expenses) will be used to fund ongoing midstream investments. Apache will have the ability to earn an additional 37.5 million shares if certain share price and operational thresholds are met over the next five years.

KAAC has entered into agreements to sell approximately 57.2 million shares of its Class A common stock at a price of $10 per share in a private placement. This private placement was anchored by accounts managed by Kayne Anderson Capital Advisors and other leading institutional investors, including Advisory Research, Inc.; certain funds managed or advised by Capital Research and Management Company, Cushing Asset Management, LP; Magnetar Capital, Salient Partners and Tortoise Capital Advisors, LLC. Directors, management and employees of both Kayne Anderson and Apache are investing $28 million in the private placement.

Altus Midstream will be structured as a C-corp with no incentive distribution rights. Cash-on-hand, additional follow-on funding, and future internally generated cash will be used to fund the ongoing build-out of midstream infrastructure at Alpine High and potential investment in long-haul pipelines.
With a planned effective date of Oct. 1, 2018, the transaction funds Apache’s projected fourth-quarter 2018 Alpine High midstream capital spend of approximately $170 million and provides future midstream capital funding for Apache at Alpine High.

Upon closing, Apache and Altus Midstream will enter into an agreement pursuant to which Apache will provide construction, operations and maintenance services for Altus Midstream.

The transaction is subject to approval by KAAC shareholders, as well as other customary closing conditions. Closing is expected in the fourth quarter of 2018, at which time KAAC will trade on the NASDAQ under the name Altus Midstream Company with a new ticker symbol to be determined.

Transaction advisors

Barclays Capital Inc. and Tudor, Pickering, Holt & Co. acted as financial advisors and Bracewell LLP acted as legal advisor to Apache on the transaction. Citigroup acted as financial advisor and Latham & Watkins LLP acted as legal advisor to KAAC. Citigroup, Barclays and Credit Suisse acted as placement agents on the private placement of Class A shares.

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