DT Midstream, Inc. (NYSE: DTM) bought three FERC-regulated natural gas pipelines from ONEOK, Inc. (NYSE: OKE) for $1.2 billion. The pipeline network spans 1,300 miles across seven Midwest states, giving it an overall capacity of 3.7 billion cubic feet per day, which thereby positions DT Midstream to cater to the increasing energy demand in the region.
DT midstream enhances pipeline system with acquisition
The acquisition of the following pipeline assets makes up DT Midstream’s acquisition: Guardian Pipeline (260 miles), Midwestern Gas Transmission (400 miles), and Viking Gas Transmission (675 miles). Guardian connects DT’s existing Vector Pipeline to Chicago and Wisconsin; Midwestern connects Appalachian supply to the Midwest; and Viking supplies Canadian supply to utilities in Minnesota, Wisconsin, and North Dakota.
In addition, CEO Slater commented that this acquisition holds strategic importance in accordance with the natural gas strategy of DT to optimize the pipeline revenues from take-or-pay contracts. The deal is set to close in early 2025, funded by an $900 million debt and $300 million equity, with a 10.5x EBITDA multiple. CFO Jeff Jewell stated that the acquisition will be accretive to Distributable Cash Flow and will provide better growth opportunities for DT.
By 2025, it is expected that the pipeline segment will contribute about 70% of the adjusted EBITDA
These earnings acquisitions are thereby anticipated to hold substantial potential for revenue increases accruing from the pipeline segment of DT Midstream which is projected to constitute close to 70% of the overall Adjusted EBITDA of the firm by 2025.
Moreover, these pipelines have customers that are 90% demand-pull and 85% investment-grade. This means the revenues are guaranteed from take-or-pay contracts, which affords a fair degree of predictability despite market fluctuations.
It secures the synergistic advancement of DT Midstream’s long-term environmental and operational objectives. It remains invested in building infrastructure to prepare for cleaner energy solutions as part of its commitment to net-zero greenhouse gas emissions by 2050.
These pipelines would add to the Spatial portfolio of DT Midstreams that already spans the Southern, Northeastern, and Midwestern US and reaches into Canada. Barclays was the financial advisor to the transaction and arranged the committed financing.
Legal counsel was provided by Weil, Gotshal & Manges LLP. The purchase is approved by the Board of Directors of DT Midstream and would be subject to the usual regulatory clearances, including expiration or termination of the waiting period under the Hart-Scott-Rodino Act.
The integration of strategic assets prefabs growth plans by DT Midstream
This is a trend reflected in the natural gas industry. Hence, as more firms, including DT Midstream, look upon improving operational efficiency and enhancing their market presence, strategic integration of assets is one cornerstone in the growth plans.
The pipelines within this deal stand to benefit from an increasing demand for natural gas in power generation and industrial facilities, particularly in the Midwest. However, the management team at DT Midstream is optimistic about the long-term benefits of the acquisition and states: Moving such a direction fortifies DT Midstream’s infrastructure and enhances its geographic footprint to position the company as an increasingly important player across the gas industry.
In addition, this transaction speaks to DT Midstream’s financial metrics while supporting a strategic vision whereby premier supply basins connect with key demand centers. A conference call has been scheduled for Wednesday, November 20, at 9:30 a.m. ET to discuss the acquisition. Insights into the deal’s impact both strategically and financially would then open an opportunity for stakeholders to engage with company leadership.
Acquisition provides a substantial, meaningful step on the continued journey of DT Midstream towards growth in much higher heights, by placing itself on par with reputed leaders in natural gas pipeline operation. The organization has made itself one of the best with the high-quality assets, steady revenue bases, and practices that are seamlessly sustainable in the environment. In addition, it is sure of being well-geared for the ongoing evolution in energy.
