Energy Transfer: Crestwood Deal Looks a Bit Late to the Permian Gas Party

Energy Transfer’s ET $7.1 billion deal to acquire Crestwood Equity Partners looks like a decidedly mixed transaction that will ultimately be close to value neutral. Crestwood’s assets are primarily gathering and processing assets located in the Williston, Delaware, and Powder River basins, with about 3.4 billion cubic feet per day of capacity. It should close by the end of 2023. The deal follows earlier deals from peers Enterprise Products Partners and Targa acquiring similar assets (Navitas, Lucid) in the Permian, and considering the respective asset portfolios, we think Energy Transfer’s peers may have acquired better-quality assets that are more closely tied to current and future drilling activity in the Permian.

However, Energy Transfer is clearly leaning into its stated position as an industry consolidator, specifically trying to control volumes as early in the midstream value chain as possible in order to connect them to other Energy Transfer assets. Gas gathering and processing assets are clearly attractive as a way to benefit from higher Permian gas production growth linked to higher demand for U.S. LNG exports. After updating our model, we maintain our $17.50 per unit fair value estimate and no moat rating. Frankly, despite our qualms over the use of undervalued stock, the size of the deal given Energy Transfer’s expected EBITDA of about $14 billion in 2024 diminishes the materiality of any lost value.