Energy Transfer to pay more than $3 billion to expand its Permian pipeline

By Tomi Kilgore

Purchase of WTG Midstream will include about 51 million new Energy Transfer shares and $2.5 billion in cash

Shares of Energy Transfer L.P. edged higher Tuesday, after the natural gas transport and transmission company announced an agreement to buy WTG Midstream Holdings LLC in a cash-and-stock deal valued at about $3.25 billion from affiliates of Stonepeak, the Davis Estate and Diamondback Energy Inc.

Energy Transfer said the deal will expand its natural gas pipeline and processing network in the energy-rich Permian Basin. WTG has a 6,000-mile pipeline network and operates eight processing plants. WTG is also constructing two new plants, with one expected to be operational in the third quarter of 2024 and the other to be in service a year later.

Energy Transfer's stock (ET) tacked on 0.4% in premarket trading, while Diamondback Energy shares (FANG) climbed 1.4%.

The deal will consist of $2.45 billion in cash and 50.8 million newly issued Energy Transfer shares. At Friday's closing price of $15.44, the equity portion of the deal would be worth about $784.4 million, or about 1.5% of Energy Transfer's market capitalization of $52.03 billion.

The deal comes at a time that natural-gas prices have been rallying, after hitting a four-year low in February. Natural-gas futures (NG00) have soared 39.9% so far in May, after rallying 12.9% in April to snap a five-month losing streak.

Read: Natural-gas prices post their first monthly gain since October. Here's why.

The deal for WTG also comes a few months after Diamondback announced a deal to buy Endeavor Energy Resources LP in a $26 billion deal, which reportedly made Diamondback the third-largest producer in the Permian Basin, behind Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX)

"The addition of WTG assets is expected to provide Energy Transfer with increased access to growing supplies of natural gas and NGL volumes enhancing the partnership's Permian operations and downstream businesses," Energy Transfer said in a statement.

Energy Transfer said it expects the deal to add about 4 cents of distributable cash flow per share in 2025, increasing to 7 cents per share in 2027.

Energy Transfer's stock has rallied 11.9% year to date through Friday, while the Energy Select Sector SPDR ETF XLE has gained 9% and the S&P 500 index SPX has advanced 11.2%.

-Tomi Kilgore

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05-28-24 0855ET

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