NGL acquires Hillstone Environmental in $600 million deal

Tulsa’s NGL Energy Partners LP announced it has executed a definitive agreement to acquire all of the equity interests of Hillstone Environmental Partners, LLC from Golden Gate Capital for approximately $600 million, subject to certain adjustments.

Hillstone provides water pipeline and disposal infrastructure solutions to producers with a core operational focus in the state line area of southern Eddy and Lea Counties, New Mexico and northern Loving County, Texas in the Delaware Basin.

Hillstone has a fully interconnected produced water pipeline transportation and disposal system, which currently consists of 19 salt water disposal wells, representing approximately 580,000 barrels per day of permitted disposal capacity, and a newly-built network of produced water pipelines with approximately 680,000 barrels per day of transportation capacity.

Hillstone also has an additional 22 permits to develop another 660,000 barrels per day of disposal capacity. NGL expects to integrate the Hillstone system into its existing Delaware Basin platform to maximize uptime and redundancy for its producer customers.

All of the water volumes on Hillstone’s Northern Delaware Basin system are delivered via multiple, large-diameter pipelines. Hillstone also has an aggregate of over 110,000 acres contracted under long-term dedications with priority disposal rights or minimum volume commitments.

“We have made substantial progress in our ongoing water strategy in the Delaware Basin, and the Hillstone acquisition represents another important milestone for our Water Solutions franchise following the closing of our combination with Mesquite in July,” stated Mike Krimbill, NGL’s CEO. “This transaction is highly complementary to our Delaware Basin asset footprint.”

“The integration of the Mesquite assets is fully underway and providing immediate benefit to our customers. The certainty of offtake and reliability of our integrated system of large diameter pipelines will provide approximately 2.7 million barrels per day of operational disposal capacity in the Delaware Basin, including the addition of Hillstone,” stated Doug White, NGL’s Executive Vice President of Water Solutions. “The high-quality Hillstone assets include long-term contracts with investment grade producers. The contracts have an average remaining term of greater than 10 years, minimum volume commitments, and first call priority volume commitments that minimize impacts of timing related to recycle and reuse activities.”

NGL has arranged financing for the transaction including certain preferred equity and debt commitments in an amount necessary to fund the entire purchase price. This transaction, which NGL estimates has been made at an approximately 7x multiple of forecasted run-rate EBITDA once certain contracted volumes are online next year, is expected to be accretive to distributable cash flow per unit in Fiscal 2021, the first full year of ownership.

The transaction remains subject to satisfaction of specified closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. NGL expects this transaction to close in 2019.

Barclays is acting as financial advisor to NGL. Barclays and Jefferies have provided a committed debt financing to NGL to support the transaction. Winston & Strawn LLP is acting as legal counsel to NGL on the Hillstone transaction. Hunton Andrews Kurth LLP is serving as legal counsel to NGL on the financing transactions.