August 8, 2018 / 9:22 PM / in 2 months

UPDATE 2-Apache, Kayne Anderson form $3.5 bln Permian basin pipeline firm

(Adds context, executive comments)

By Gary McWilliams

HOUSTON, Aug 8 (Reuters) - U.S. oil producer Apache Corp is putting its West Texas pipeline assets into a joint venture with investment firm Kayne Anderson that will operate in the largest U.S. shale field, the companies announced on Wednesday.

Apache has invested heavily in its own Permian Basin pipeline and processing plants to support a major oil and gas discovery that it projects will require decades of drilling. The firm has been looking for partners to shoulder the costs of the buildout and has taken stakes in five other pipelines in the region to increase its attractiveness.

“We conducted a competitive process and received many offers,” Apache Chief Executive John Christmann said at a news conference. “This (deal) allows Apache to control and direct the ongoing infrastructure build out” at the shale discovery it calls Alpine High.

Under terms of the deal, Apache will contribute about $1 billion in assets to Kayne Anderson Acquisition, which will have $900 million in cash after a private placement is complete. When the deal closes later this year, Apache will own 71.1 percent of the company, which will be renamed Altus Midstream Co.

Kevin McCarthy, chairman of Kayne Anderson Acquisition, said a private placement will allow the company to finance its planned buildout without returning to equity markets. Investors in the placement include Cushing Asset Management, Salient Partners and Tortoise Capital Advisers, which have been large investors in pipeline and other infrastructure ventures.

Altus will have a market value of about $3.5 billion, executives of the companies estimated, and it could use its shares to acquire other assets in the Permian and expand operations.

“There are a lot of private equity-backed companies in the basin” that could be looking for buyers in the future, McCarthy said. “We think having an attractive currency like Altus Midstream will be a competitive advantage.”

Brian Freed, senior vice president of Apache’s midstream and marketing division, will serve as Altus’ CEO. The company is projected to be free-cash-flow positive by 2021, he added.

Altus will operate Apache’s oil and gas pipelines at Alpine High and have options to buy Apache’s stakes in five planned pipeline projects from the Permian Basin to the Texas Gulf Coast.

Christmann said the deal would allow Apache to shift about $170 million in fourth quarter and $250 million in 2019 capital spending on its pipelines to Altus. The pipeline company’s results will be consolidated with Apache’s.

“It frees us up and we’ll have a lot more flexibility now,” Christmann said. (Additional reporting by Karan Nagarkatti in Bengaluru; Editing by Sai Sachin Ravikumar and Cynthia Osterman)

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