Benzinga | Oct 26, 2021 07:14AM EDT

Oasis Petroleum Reports Oasis Midstream Partners Will Merge With Crestwood Equity Partners In $6.9B Deal

Oasis Petroleum Inc. (NASDAQ:OAS) ("Oasis" or the "Company") announced today that Oasis Midstream Partners (NASDAQ:OMP) ("OMP") has entered into a definitive agreement under which it will merge with Crestwood Equity Partners LP (NYSE:CEQP) ("Crestwood"). Under the terms of the agreement, Oasis, as a unitholder of OMP, will receive $160MM in cash in addition to approximately 21.0MM common units of CEQP in aggregate in exchange for its 33.85MM OMP common units and non-economic general partner stake. Public OMP unitholders will receive 0.87 units of Crestwood common units for each unit of OMP owned. In the aggregate, the total consideration represents an at-the-market transaction based on the closing prices for OMP and Crestwood on October 25, 2021, and implies an enterprise value for the combined companies of approximately $6.9B. Upon completion of the transaction, Oasis will own approximately 21.7% of Crestwood common units.

"We are pleased to reach this agreement, which represents an outstanding outcome for Oasis shareholders and OMP unitholders. This transaction creates a combined midstream company well positioned to drive future value with enhanced scale and customer and basin diversification," said Danny Brown, Oasis' Chief Executive Officer. "Crestwood is a highly regarded, diversified midstream operator with a large footprint in the Williston Basin, making it the ideal midstream partner with the expertise and team to handle a large portion of Oasis' hydrocarbons and produced water. The combination of OMP and Crestwood immediately enhances value for Oasis shareholders while increasing transparency with deconsolidated financial reporting, highlighting the Company's E&P operations. Oasis is now well positioned to further participate in industry consolidation opportunities. Additionally, Oasis expects to benefit from its remaining ownership in the new Crestwood which, following this accretive merger, will be a larger, more diversified midstream entity with a strong balance sheet and an attractive outlook. For OMP unitholders, the transaction delivers compelling value, and the opportunity to participate in the upside potential and attractive distributions of the new Crestwood."

Strategic and Financial Benefits for Oasis

* Accelerates Value for Oasis Shareholders: In exchange for Oasis' approximately 33.85MM OMP common units and non-economic GP interest, Oasis will receive $160MM in cash and 21.0MM common units in Crestwood, representing an attractive valuation of ~8x 2021E OMP EBITDA. The transaction is expected to address the sum of the parts disconnect imbedded in Oasis' current valuation;

* Aligns Oasis Financial Reporting with E&P Operations: After the transaction close, Oasis will no longer report financial results consolidated with OMP post close. Reporting will be more aligned with Oasis' underlying E&P operations;

* Maintains Ownership Position in Leading Midstream Company: At closing, Oasis will hold a significant ownership position with upside in the new Crestwood, which will be a leading midstream operator positioned for future success. Enhanced trading liquidity is expected due to the larger size and scale of the combined companies;

* Advances Commitment to ESG and Sustainability: The transaction is aligned with Oasis' ESG objectives, creating an entity with an extensive infrastructure network that will help limit methane flaring as well as the trucking of oil and water. Crestwood is expected to continue to progress its three-year sustainability strategy focused on diversity and inclusion, emissions reductions, biodiversity, supply chain and ESG disclosure;

* Strengthens Balance Sheet: Further strengthens Oasis' balance sheet, resulting in no leverage pro forma for the transaction with pro forma liquidity of $918MM;

* Utilizes Net Operating Loss (NOL) Carryforwards: Upon close of the transaction, Oasis expects to utilize a significant portion of its NOL balance. This could allow Oasis to subsequently eliminate the tax plan announced in August 2021 that was put in place to protect the NOLs. This action would once again permit shareholders to own more than 5% of Oasis' shares outstanding.

Strategic and Financial Benefits of Combined Crestwood and OMP

* Premier Multi-Basin Exposure Improves Scale and Diversity: The transaction brings together two premier midstream operators with strong pipeline networks across various commodities and diversified customer bases, enhancing both company's competitive positioning. The two midstream companies have complementary operations and together, will operate in key basins including the Williston, Delaware, and Powder River;

* Immediately Accretive to Distributable Cash Flow: Pro forma for the transaction, Crestwood intends to increase its distribution to $2.62/unit or approximately 5%;

* Substantial Synergies: The combined entity expects to realize approximately $25MM of annual synergies. Its leaner, more efficient cost structure will support free cash generation.

* Strong Management Team to Operate Assets: Crestwood has an outstanding team and track record to lead the go forward midstream company.

In connection with the transaction, Oasis will receive the right to appoint two representatives to the Crestwood Board of Directors, subject to on-going ownership thresholds. Oasis fully supports this transaction and has executed a Support Agreement with respect to the transaction. This transaction has been unanimously approved by the Board of Directors of both Crestwood and Oasis and has also been unanimously approved by the Board of Directors and Conflicts Committee of the general partner OMP. The transaction is expected to close in the first quarter of 2022 and is subject to the satisfaction of customary closing conditions, including regulatory approvals.