NextEra Energy Partners, LP has announced a definitive agreement to acquire Meade Pipeline Co LLC in a transaction valued at approximately US$1.37 billion, including roughly US$90 million in future capital contributions through 2022, which are related to an expansion opportunity at the existing pipeline.
Meade Pipeline owns a 39.2% interest in the Central Penn Line, a 185-mile intrastate natural gas pipeline that is an integral part of a pipeline system regulated by the Federal Energy Regulatory Commission (FERC) that provides the Marcellus natural gas producing region access to large demand centres in the mid-Atlantic and Southeastern regions of the US. The pipeline has the capacity to transport and deliver up to approximately 1.7 billion ft3/d of natural gas. The pipeline, which is backed by a minimum 14-year contract with an investment-grade-equivalent customer, is jointly owned by Transcontinental Gas Pipe Line Company, or Transco, which operates the pipeline as a segment of its larger Atlantic Sunrise project.
"We are pleased to have reached a definitive agreement to acquire Meade Pipeline and its interests in the Central Penn Line, which is backed by an attractive fixed-lease payment with a high-credit quality customer, and further expand NextEra Energy Partners' investment in long-term contracted natural gas pipelines, helping mitigate any potential resource volatility in the portfolio," said Jim Robo, chairman and chief executive officer of NextEra Energy Partners. "Meade Pipeline is a very attractive acquisition for NextEra Energy Partners, and is expected to yield a double-digit return to NextEra Energy Partners' limited partner unit holders and generate a cash available for distribution yield of roughly 14%. This is NextEra Energy Partners' second third-party acquisition, which helps extend the partnership's best-in-class long-term growth visibility and further strengthen its investor value proposition. This transaction, combined with the incremental cash available for distribution generated by our previously announced repowering projects and the purchase of the outstanding Genesis debt, is expected to support our long-term growth objectives without the need for additional asset acquisitions until 2021. NextEra Energy Partners remains as well-positioned as ever to deliver on its long-term growth objectives and continue its track record of delivering value to limited partner unit holders."
Central Penn Line overview
Central Penn Line is a long-term contracted natural gas pipeline that is a critical resource to transport low-cost Marcellus natural gas to Mid-Atlantic demand centres. Transco, which has contracted 100% of the capacity of the pipeline to nine shippers, has a minimum 14-year lease with Meade for its interest in Central Penn. Under the lease, Meade receives a fixed annual payment from Transco and takes no volumetric risk on the pipeline. Meade's lease revenues are only exposed to the credits of Transco and Cabot Oil & Gas, which has the equivalent of an investment-grade rating and maintains one of the strongest balance sheets and free cash flow profiles in the oil and gas sector.
Cabot has a unilateral option to extend its transportation service agreement with Transco for an additional five years beyond the remaining 14-year term. If Cabot exercises its extension, Transco's lease with Meade will automatically run through October 2038, five years beyond the current minimum term.
Included in the transaction is an approximately US$90 million future expansion opportunity at the existing pipeline. The expansion is expected to add an estimated 0.6 billion ft3/d of natural gas capacity to Central Penn through the addition of compression at new and existing stations. Meade will own 40% of the expanded capacity and receive an additional fixed-lease payment from Transco for 20 years from the in-service date. The expansion lease provides a guaranteed pre-tax unlevered return to Meade on capital expenditures for the project. As such, Meade and NextEra Energy Partners are protected from any potential cost overruns. Transco, the operator, filed its FERC application at the end of July. The expansion is anticipated to be completed in mid-2022, subject to receipt of all required regulatory approvals.
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