NuStar finds entrance into another major shale play for $1.4B

By Luke Geiver | April 12, 2017

After searching for 18 months for a way to break into the Permian Basin, NuStar Energy LLP has found its entrance. For $1.475 billion, the pipeline and storage company has signed a definitive agreement with Navigator Energy Services LLC to acquire Navigators midstream assets in the core of the Midland Basin. “It has been no secret that we have been actively searching for a way to break into the Permian Basin,” said Brad Barron, president and CEO of NuStar in a call to explain the acquisition.

NuStar had looked at various options for an acquisition, but according to Barron, nothing met the company’s criteria for assets on in some cases, assets included in a deal were outside the team’s core expertise.

The Navigator assets are located within five of the six best oil producing and active counties within the Midland Basin. Much of the infrastructure is new build, but NuStar intends to spend hundreds of millions of dollars in the next few years to update, add or maintain the infrastructure. Of the 16 energy producers currently contracted onto the system, half are publically traded and the other half are Permian pure-play operators. The counties where the producers—and the newly purchased assets are located—have some of the lowest well breakeven prices in the entire country, Barron said.

With the purchase of the Navigator assets, NuStar is now present in two of North America’s major shale basins—the Permian and Eagle Ford. In the future, it is possible that the Navigator system could be linked to NuStar’s Eagle Ford system that is also connected to Corpus Christi, Texas.

Included in the asset deal was 500 miles of crude oil mainline transportation pipeline with a 74,000 barrel per day ship-or-pay volume commitment; a gathering systems linked to 200 tank batteries spread across 500,000 acres; 1 million barrels of crude oil storage capacity with 440,000 leased to third parties.

To pay for the acquisition, NuStar intends to go to the equity markets and the debt markets. The company has also issued 12.5 million common units.