... ArcLight to Drop Down Gulf Interests to American Midstream

ArcLight to Drop Down Gulf Interests to American Midstream

Denver-based American Midstream Partners LP will receive a controlling interest in a Gulf of Mexico oil and gas production operation in drop down agreement.

American-Midstream-Partners-LogoAn affiliate of ArcLight Capital Partners LLC, which controls the general partner of American Midstream, intends to drop down 25 percent of ArcLight’s 51.7 percent controlling interest in Delta House, a fee-based, semi-submersible floating production system (FPS) and associated oil and gas export pipelines in the deepwater Gulf of Mexico.

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Delta House was financed in December 2012 by an equity consortium led by ArcLight and commenced operations in the second quarter of 2015, at which point ArcLight and American Midstream began formal discussions regarding the proposed drop down, according to an Aug. 10 announcement. American Midstream executives worked with ArcLight to source and execute the Delta House project, which complements American Midstream’s strategic focus on the eastern Gulf of Mexico where the Partnership is pursuing additional, related opportunities.

American Midstream and ArcLight anticipate closing the drop-down transaction before year-end 2015 at a purchase price of $162 million. ArcLight’s remaining interest in Delta House is potentially available for future drop-down transactions depending on market conditions and other factors. At its current unit price, the American Midstream anticipates financing the transaction without accessing the public equity markets.

A conflicts committee of the board of directors of the general partner of the American Midstream composed of independent directors, as well as the full board of directors of the general partner, unanimously approved the transaction subject to financing and other customary closing conditions.

“The drop down of an initial interest in Delta House will complement our existing eastern Gulf of Mexico operations and further expand our footprint into the operating core of the Mississippi Canyon, one of the most prolific regions of the Gulf of Mexico,” said Steve Bergstrom, executive chairman, president and CEO. “Delta House is a world-class offshore production handling facility developed by ArcLight and LLOG Exploration, a leading private deepwater exploration company in the Gulf of Mexico, as well as a consortium of exploration companies and other investors.”

Acquiring the interest in Delta House will increase American Midstream’s size and scale through incremental fee-based cash flows supported by long-term contracts and life-of-lease dedication, added Bergstrom added. The company has additional growth opportunities, based on the a potential future drop down of a 50 percent interest in Republic Midstream and the potential future drop down of ArcLight’s remaining interest in Delta House, which could add approximately $1 billion of fee-based growth through 2017.

“We have long viewed the Delta House project as complementary to American Midstream and a cornerstone asset in a prolific producing region with significant asset consolidation and development potential,” said Dan Revers, ArcLight’s managing partner. “The proposed drop-down transaction is a testament to our strong and continuing support for American Midstream and underscores the highly collaborative nature of the working relationship between American Midstream and its sponsor.”

Delta House is operated by LLOG Exploration Offshore LLC and is located in the Mississippi Canyon region of the deepwater Gulf of Mexico, with processing capacity of 80,000 barrels per day (bpd) of oil and 200 million cubic feet of gas per day (MMcf/d) and peak processing capacity of 100,000 bpd and 240 MMcf/d, respectively.

Delta House commenced operations in April 2015 and currently has six wells online with eight wells scheduled to be online by the end of 2015. Additional wells are in various stages of drilling and completion and are anticipated to be connected to the FPS in 2016 and beyond, and as a result, the FPS is expected to operate at or near capacity for a minimum of four years.

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