Azure Midstream to acquire Marlin Midstream Partners’ general partner

Azure Midstream Energy, LLC has announced that Azure, Marlin Midstream Partners, LP (the Partnership) and Marlin's sponsor, NuDevco Midstream Development, LLC have entered into definitive agreements that will result in Azure owning 100% of the general partner of Marlin and 90% ownership of the total outstanding incentive distribution rights (IDRs) in Marlin. In addition, Azure's Legacy gathering system will be contributed to Marlin for US$162.5 million (Dropdown Acquisition). NuDevco will retain all of its 10.7 million LP units, or 59.2% ownership stake, in Marlin, subject to an option granted to Azure to acquire 20% of such units from NuDevco in order to align interests and incentivise unit holder value creation.

The combination of Azure and Marlin creates a diverse platform of midstream assets creating one of the largest gathering and processing systems in the Haynesville and horizontal Cotton Valley plays in east Texas and northern Louisiana. The combination is expected to offer enhanced scale and diversification that provides additional financial flexibility that will allow the combined Partnership to compete for greenfield development and acquisition opportunities across the midstream value chain. Further, the combination of a significant portfolio of long-term, fee-based contracts with high-quality producers, coupled with the potential for organic capital opportunities across multiple geographies, provides meaningful visibility to long-term growth for the Partnership. The complementary services offered by Azure and Marlinare also expected to create attractive operational and financial synergies for both entities.

The Legacy system consists of approximately 658 miles of high and low pressure gathering lines primarily under fixed-fee contracts that serve approximately 100 000 dedicated acres predominantly in the Cotton Valley formation in east Texas and northern Louisiana with access to seven major downstream markets. The Dropdown Acquisition is expected to be immediately accretive to Marlin's distributable cash flow and the cash portion of consideration is expected to be fully funded under Marlin's US$225 million amended credit facility. The proposed transactions will result in a Partnership with a total enterprise value of over US$500 million and new sponsorship provides visibility into future dropdowns.

Azure will retain the Center gathering system and the Holly gathering system at the general partner level for future potential dropdown acquisitions into the Partnership over time. Azure gained control of the Center system, the Holly system and the Legacy system assets through the acquisition of TGGT Holdings, LLC from EXCO Resources, Inc. and BG Group plc and the acquisition of an ownership interest in the East Texas Gathering system from Tenaska Capital Management, LLC in November 2013 for total consideration of approximately US$1.05 billion. The Center system consists of approximately 372 miles of high pressure pipeline serving multiple formations, including the Haynesville, Bossier and the liquids-rich James Lime formation across approximately 370 000 dedicated gross acres primarily located in east Texas. The Holly system consists of approximately 335 miles of high and low pressure pipeline serving the Haynesville and Bossier Shale formations and the liquids-rich Cotton Valley formation across approximately 69 000 dedicated gross acres primarily located in northern Louisiana.

"This transaction advances Azure's strategic objectives of becoming part of a larger, public MLP capable of providing access to growth capital for acquisitions, and further diversifies our customer base and midstream service offerings by expanding Azure with Marlin's new and efficient processing assets within our core areas," said I.J. ‘Chip’ Berthelot, Chief Executive Officer, President and Director of Azure. "With this combination, we have expanded the set of services offered to our customers. This enables us to capture significant synergies between the systems and maximise returns on future investments, as well as compete more effectively for bolt-on acquisitions and step-out expansions in other areas."

Marlin's Chairman and Chief Executive Officer, W. Keith Maxwell III said: "We are excited to combine our assets with Azure and look forward to a successful collaboration of our talented employees to build a first class midstream services provider. This transaction diversifies and expands the Partnership's service offerings and customer base, and positions the combined Partnership for materially accelerated distribution growth over the coming years that is immediately accretive to Marlin unitholders, including the common and subordinated units that I, indirectly through NuDevco, continue to own. Further, we expect Azure's seasoned management team and high quality operating assets will create additional value from Marlin's existing and now expanded asset base."

Adapted from press release by Rosalie Starling

Read the article online at: https://www.worldpipelines.com/business-news/16012015/azure-midstream-to-acquire-marlin-midstream-partners-general-partner-48/