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American Midstream in $100M Deal

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Midstream service provider, American Midstream Partners, LP (AMID) announced that it would purchase a natural gas gathering and redelivery system for $100 million. The 120-mile system is located in the oil prospects of the Eagle Ford shale play. The closure of the transaction is expected by Jan 2014.

An affiliate of the general partner of American Midstream had entered into a sale and purchase agreement to acquire this gathering and delivery system from a subsidiary of Penn Virginia Corporation (PVA) in Dec 2013. American Midstream would acquire full stake of the affiliate that entered into this agreement and close the deal with Penn Virginia.

Upon closing the transaction, the partnership plans to enter a 25-year contract with Penn Virginia to receive the entire production from the region that the system generates. American Midstream anticipates generating about $8 million of EBITDA in 2014 from the system.

The gathering system has an operating capacity of about 90 million cubic feet per day (MMcf/d). By the mid of 2015, the volume from the system is expected to expand about three times the current level, owing to the promising drilling locations yet to be exploited. The partnership plans to invest about $60 million to $70 million to expand the system.

Taking into consideration the impact of this acquisition the partnership updated its guidance. EBITDA is expected in the $41 million to $44 million range and DCF between $21 million and $24 million. Excluding the maintenance capital expenditure, growth capex is expected at $55 million to $60 million. Of this capex, the Penn Virginia system is expected to take up $30 million.

In a separate release, the partnership announced the offering of 3,400,000 of its common units. American Midstream plans to give underwriters a 30-day period to buy up to 510,000 additional units. Proceeds generated from the offering will be used to fund part of the Penn Virginia system acquisition.

In another report, the partnership announced that its general partner has announced a regular quarterly distribution of 45.25 cents per unit ($1.81 per unit annualized). The distribution is payable on Feb 14, 2014 to unitholders of record as of Feb 7.

American Midstream currently holds a Zacks Rank #3 (Hold). Meanwhile, one can consider the better-ranked stocks of Cheniere Energy Partners Lp (CQP) and Pembina Pipeline Corporation (PBA). Both these stocks currently sport a Zacks Rank #1 (Strong Buy).

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