Energy Transfer continues its acquisition spree with this $3.3 billion deal (giving it much more fuel to expand its high-yield payout)

Energy transfer (NYSE:ET) continues to lead the consolidation of the midstream sector. The master limited partnership (MLP) completed two deals last year and recently completed its first acquisition in 2024. Midstream is paying nearly $3.3 billion to acquire WTG.

The latest offer coincides with it perfectly acquisition strategy finding incremental deals that strengthen its value chain without negatively impacting its balance sheet. This approach should continue to pay dividends for investors through assurance MLP fuel to further develop its high-efficiency distribution (currently over 8%).

Analysis of the latest Energy Transfer contract

Energy Transfer buys WTG Midstream for approximately $2.5 billion in cash and 50.8 million units (nearly $3.3 billion). This The transaction structure positions Energy Transfer to achieve high returns on equity while maintaining its target leverage ratio. The company expects this highly favorable transaction to increase distributable cash flow per unit by $0.04 per share in 2025, increasing to $0.07 per unit by 2027.

WTG Midstream fits Energy Transfer like a glove. It will strengthen and expand the company’s gathering and processing position in the Permian Basin. WTG Midstream owns 6,000 miles gas collection pipelines in the Midland Basin during the Permian. It has eight operating natural gas processing plants with a capacity of 1.3 billion cubic feet per day (Bcf/d). It also has a 20% stake in the BANGL natural gas liquids (NGL) pipeline. Long-term, high-quality customer contracts support these highly complementary assets:

Energy Transfer expects to complete the transaction in the third quarter. It will provide the MLP with incremental income, which is expected to grow over the next several years as the company completes certain related expansion projects and realizes commercial and cost synergies.

Built-in growth

WTG Midstream will increasingly increase revenues from energy transmission over the next few years. The acquisition will provide MLP with, among others: clearly visible short-term growth due to the completion of current expansion projects. It will also infuse NGL companies with its downstream assets, increasing their volumes and fees.

WTG Midstream is building two more natural gas processing plants It will be add 0.4 Bcf/d of additional power. The company expects the first facility to come online in the third quarter and the second in the third quarter of 2025. Additionally, the joint venture partners that own the BANGL pipeline are expanding the 125,000 barrel per day (BPD) pipeline to 200,000 barrels per day. BPD. This extension should come into use in the first half of next year. Partners could eventually expand this pipeline to over 300,000 BPD.

The story continues

Energy Transfer expects the acquisition to open up new expansion opportunities in the future. As producers in the Midland Basin increase production, Energy Transfer may build additional gathering pipelines and processing plants. Meanwhile, increasing production volumes could ultimately drive downstream developments, including additional pipeline expansion, new NGL fractionation capabilities and greater export opportunities. These factors support the company’s view that the transaction will increase distributable cash flow per share over the next several years.

Growing cash flow will help support Energy Transfer’s plans to increase distribution. The MLP’s goal is to raise payouts by $0.0025 per unit each quarter ($0.01 annually), meaning this arrangement alone could fuel distribution growth for several years. This could allow the company to accelerate its distribution growth rate towards the upper end of its target range of 3% to 5% per year (3.3% growth has been achieved over the past year).

Another smart trade

Energy Transfer continues to make extremely dynamic acquisitions that strengthen its value chain. This strategy allows the MLP to increase cash flow per share, giving it more fuel to increase large payouts. The WTG Midstream transaction alone could fuel distribution growth for several years, making MLPs an even more attractive option for income-seeking investors.

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Matt DiLallo holds positions in the Energy Transfer department. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Energy Transfer Continues Its Acquisition Spree With This $3.3 Billion Deal (Giving It Much More Fuel To Increase Its High-Yield Payout) was originally published by The Motley Fool