CorEnergy Infrastructure Trust, Inc. (CorEnergy or the Company) has announced the acquisition (the Transaction) of Crimson Midstream Holdings, LLC (Crimson), a California Public Utilities Commission (CPUC) regulated crude oil pipeline owner and operator, for consideration valued at approximately US$350 million. The acquired assets include four critical infrastructure pipeline systems spanning approximately 1800 miles across northern, central and southern California, connecting desirable native California crude production to in-state refineries producing state-mandated specialised fuel blends, among other products.
The acquisition was funded with a combination of cash on hand, commitments to issue, as described below, approximately US$119.4 million of new common and preferred equity, contribution of the Grand Isle Gathering System (GIGS) to the sellers, and US$105.0 million in new term and revolver borrowings. The acquired assets qualify for REIT treatment under established IRS regulations and CorEnergy’s Private Letter Ruling (PLR).
Crimson Transaction Highlights and Outlook
- Results in ownership of six pipeline systems in three markets serving diversified, creditworthy shippers.
- Enhances CorEnergy’s reliance on regulated contractual revenue sources.
- Crimson’s asset base and operating expertise facilitate greater potential for strategic acquisitions in the future.
- Expected run rate combined EBITDA of US$50 - US$52 million on an annualised basis in beginning in 2Q21.
- Total leverage at closing of approximately 4.4x expected EBITDA; senior secured leverage of 2.1x.
- Will use cash flow to further de-leverage to a target of < 4.0x to create financial flexibility and reduce risk.
- Incremental cash flow generated by acquisition will cover an initial US$.20 annualised common stock dividend increasing to a target of US$.35 - US$.40 upon a return to pre-COVID market conditions in California, with near term commercial opportunities providing upside.
Following the transaction, Dave Schulte will remain Chairman, CEO and President of CorEnergy. John Grier, founder and Board Chairman of Crimson Midstream, LLC, will become Chief Operating Officer and join the Board of Directors of CorEnergy. Additional members of Crimson’s executive and operating teams joining CorEnergy, include Robert Waldron, Chief Financial Officer at Crimson Midstream, who will become CFO of CorEnergy and Larry Alexander, President of Crimson California’s operations.
Commented Dave Schulte, “The acquisition of Crimson diversifies CORR’s critical infrastructure portfolio with four new pipeline networks and positions CorEnergy as an owner/operator of utility-like assets in line with expectations for our industry leading REIT qualifying platform. John and his team operate safely and reliably in a highly regulated market, and we plan to leverage their expertise to continue to grow our newly combined company. Additionally, we are exchanging CorEnergy’s single-tenant GIGS asset for long-lived critical infrastructure pipeline systems used by a diverse group of investment-grade rated customers.”
“Our combined ability to pursue additional opportunities leveraging Crimson’s oil market relationships, together with CorEnergy’s natural gas transmission assets, establishes a diversified foundation for future acquisition consideration,” said John Grier. “The Crimson pipeline networks connect multi-billion dollar refining complexes to low declining fields, producing desirable native grades of California crude oil, which is required for blended energy products satisfying state environmental standards. We are confident that Crimson’s total system volumes will increase from current levels as both consumers and producers return to pre-COVID-19 activity levels. In addition, we believe that there are commercial growth opportunities in California that could provide additional contributions to cash flow, including opportunities to leverage Crimson’s leading position in the market and extensive real property ownership for renewable fuel storage and distribution, carbon capture potential, and the shift to lower carbon power sourcing.”
Read the article online at: https://www.worldpipelines.com/contracts-and-tenders/05022021/corenergy-announces-acquisition-of-crimsons-california-pipeline-assets/