Midstream growth: although midstream M&A activity has been robust, many companies are taking a breather to grow what they've already acquired.(merger and acquisition)

Publication: Oil and Gas Investor

Publication Date: 01-JUN-06

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COPYRIGHT 2006 Hart Publications, Inc.

For the past several quarters, M&A activity in the midstream energy sector has been It fast and furious. Growing oil and gas demand and new plays have pushed many midstream companies to expand their gathering, pipeline and storage infrastructure as much as their capex budgets have allowed, which bumped many organic growth initiatives to the back seat in early 2005.

But some say the M&A cycle is turning a comer, and organic growth plans will have a higher priority for many midstream companies this year.

"Organic growth is more appealing," says John Freeman, vice president of energy equity research at Raymond James & Associates Inc. "Organic growth projects are usually done on a five- to seven times EBITDA (earnings before interest, taxes, depreciation and amortization) multiple, while recent acquisition multiples in the [Raymond James] midstream space have been 10 times EBITDA. That being said, sometimes acquisitions spur significant organic growth projects."

Kirk Blackim, vice president, business development, for Tulsa-based Clear Creek Energy Services, a midstream service company, says a large portion of midstream M&A activity today is driven by a large, pent-up demand from the capital markets for good energy transactions and a number of aggressive master limited partnership (MLP) buyers that...

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