Summit Midstream Expands With DJ Basin Asset Acquisitions

Summit Midstream will expand its Denver-Julesburg basin assets through acquisitions totaling $305 million in cash.

Summit Midstream said that its subsidiary, Summit Midstream Holdings, agreed to acquire Outrigger DJ Midstream from Outrigger Energy II and Sterling Energy Investments, Grasslands Energy Marketing, and Centennial Water Pipelines from Sterling Investment Holdings.

Outrigger assets in Weld County, Colorado, are comprised of a 60 MMcfd cryogenic natural gas processing plant, about 70 miles of low-pressure natural gas gathering lines, 90 miles of high-pressure natural gas gathering lines, 12,800 horsepower of field and plant compression, and about 30 miles of crude oil gathering pipelines.

The gathering agreements for Outrigger DJ system include long-term, fee-based contracts with a weighted average term of over 10 years. Volume throughput on the Outrigger DJ system is underpinned by acreage dedications, with an estimated 310,000 leased acres from its key customers, including Mallard Exploration and other producers in the region. Outrigger DJ delivers residue gas to Cheyenne Plains, natural gas liquids to the Phillips 66 NGL System, and crude oil to Pony Express Pipeline.

The Sterling DJ assets, in Weld, Morgan, and Logan Counties, Colorado, and Cheyenne County, Nebraska, are comprised of three cryogenic processing plants with nameplate capacity of 100 MMcfd, some 450 miles of natural gas gathering lines, 8,500 horsepower of field compression, freshwater rights, and 40 miles of subsurface freshwater delivery infrastructure.

Sterling DJ's commercial contract portfolio includes long-term, fee-based, and percentage-of-proceed agreements with a weighted average term of over 11 years. Volume throughput on the Sterling DJ system is underpinned by acreage dedications, with an estimated 170,000 leased mineral acres attributable to several DJ basin producers. Sterling DJ delivers residue gas to Cheyenne Plains, Southern Star, and Trailblazer as well as natural gas liquids to Overland Pass.

Dedicated acreage spans productive, oil prone areas within the basin, with producers primarily targeting the Niobrara and Codell formations.

“We are excited to announce the expansion of our DJ Basin presence with these strategic bolt-on acquisitions. These highly value- and credit-accretive transactions create a strategic franchise position in the DJ Basin that we believe will generate significant free cash flow growth for Summit in the coming years while immediately enhancing the quality and availability of services for our combined customer base in the region via the integration of our underutilized Hereford gathering and processing system with the capacity constrained Sterling DJ and Outrigger DJ systems.”

“Combining operations of the three systems will create significant commercial and operating synergies and will provide substantial running room to grow dedicated producer volumes in the coming years with minimal capital expenditure requirements. Outrigger DJ and Sterling DJ customers are expected to connect over 75 new wells in 2023 and are well positioned to sustain and potentially grow that level of development activity in the coming years with more than 675 active permits currently held on dedicated acreage.”

“Furthermore, given the prevalence of gas processing constraints across the DJ Basin, the connectivity of the combined asset footprint with other gathering systems and the integration of the underutilized Summit Hereford and Sterling DJ Jackson Lake processing complexes, we believe there will be additional near-term upside opportunities to grow volumes both organically and through offload arrangements with other midstream operators in the basin,” Heath Deneke, president, CEO, and chairman of Summit Midstream.

Summit Midstream added that the transactions were expected to close during the fourth quarter of 2022, subject to customary regulatory approvals.

To contact the author, email bojan.lepic@rigzone.com