Crestwood Seeking Liquids Midstream Deals After Merger

Crestwood Midstream Partners LP, which is expected today to complete a merger with Inergy Midstream LP, is on the hunt for more assets to expand its oil and natural gas liquids business, focusing on shale regions such as the Marcellus in the northeast U.S.

The combined companies will have a market capitalization of about $6.1 billion and operations in the Bakken of North Dakota, the Niobrara of Colorado, the Permian in West Texas, and the Utica in Ohio, as well as the Marcellus.

“We think the market is very attractive right now,” Crestwood Chief Executive Officer Robert G. Phillips said in a phone interview today from his Houston headquarters. “If we continue to acquire assets, which we will, they’ll be located in those areas.”

Inergy will take Crestwood’s name after it closes today on the $1.61 billion purchase of Crestwood it announced in May. The combined entities are expected to begin trading in New York tomorrow under Crestwood Midstream’s ticker CMLP. The owner of the group’s general partner will be called Crestwood Equity Partners LP and trade under the ticker symbol CEQP.

Crestwood may target businesses between $100 million and $1 billion in size, depending on how a deal could be financed, Phillips said. Opportunities will be presented to Crestwood’s newly merged board of directors when it meets in November.

Phillips is aiming for an investment-grade rating from the credit agencies. To obtain that, Crestwood needs about $500 million in annual free cash flow, which is “certainly” within reach next year if it makes additional purchases, he said.

Growth Imperative

The Inergy-Crestwood merger is an example of the emphasis on growth in the midstream industry as booming U.S. oil and gas production from shale fields drives a need for more pipelines, storage and processing units, he said.

“Access to capital is getting more and more competitive for the small-cap stocks,” Phillips said. “The larger guys in this industry have an advantage, both with investors as well as customers.”

Phillips, the former CEO at rival Enterprise Products Partners LP, said he’s a believer in Enterprise’s diversified portfolio, with service offerings from the wellhead all the way to international export facilities.

“We’re striving to replicate that business model,” he said. “That’s the primary strategic rationale behind the Crestwood-Inergy merger.”

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