The Daley Note: November 15, 2023
Williams (WMB) is growing its footprint in the Denver-Julesburg Basin. As part of its 3Q23 update, WMB announced separate deals to purchase Cureton Midstream for $560MM and buy the remaining 50% interest in Rocky Mountain Midstream for $714MM.
East Daley Analytics sees several opportunities for synergies from the acquisitions. The deals bring WMB’s share of DJ Basin gas production volumes to 12%, according to G&P data in Energy Data Studio. WMB will become the third-largest midstream operator in the DJ Basin behind DCP Midstream (DCP; 40% share) and Western Midstream (WES; 44% share). WMB expects to close the acquisitions in 4Q23.
The deal with partner KKR gives Williams 100% ownership in Rocky Mountain Midstream and its Discovery G&P system. In Energy Data Studio, EDA projects rig activity on the Discovery system to oscillate between 1-2 rigs operated by Civitas Resources. The forecast for Cureton is currently flat at ~1 rig, which EDA attributes to drilling from Verado Energy and North Silo Resources. Rig activity in the DJ Basin is responsive to gas prices, so there is potential upside to our rig outlook if prices rise.
In the company Financial Blueprints, EDA projects the Discovery system to earn ~$101MM in Adj. EBITDA in 2024, while we forecast EBITDA of ~$81MM for the Cureton system next year.
WMB is likely to find additional value from the Cureton assets through its NGL business. Once existing commitments expire, WMB can put more NGLs from Cureton’s gas plants through its Overland Pass Pipeline (OPPL) and increase volumes to other downstream assets, including its Conway, KS fractionator and the Bluestem Pipeline between Conway and Oklahoma.
As NGL volumes from the Cureton system gradually migrate to OPPL, there is downside risk to other Rockies NGL egress pipes such as ONEOK’s (OKE) Elk Creek, Wattenburg (DCP) and White Cliffs (Sem Crude).
In addition to synergies captured by downstream assets, WMB can use latent capacity on the Discovery system to process gas from the Cureton system. The Front Range and Gilcrest gas plants currently combine for 103 MMcf/d of processing capacity, while Cureton’s plants are receiving upward of 120 MMcf/d, according to the latest production data in Energy Data Studio.
Under our flat rig scenario on the Cureton Midstream system, EDA projects volumes to grow 50% over the next three years (see figure). The acquisition will allow volumes to continue expanding on Cureton without the need to invest in new processing capacity. – Zach Krause Tickers: DCP, OKE, WES, WMB.
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