TULSA, Okla. - ONEOK , Inc. (NYSE: NYSE:OKE), a significant player in midstream service providers, has entered into a definitive agreement to sell its three interstate natural gas pipelines to DT Midstream, Inc. (NYSE: DTM) for $1.2 billion, a transaction based on a multiple of 10.8 times the earnings before interest, taxes, depreciation, and amortization (EBITDA) for the trailing 12 months ending June 30, 2024.
The deal, which is expected to close in the fourth quarter of 2024, includes the Guardian, Midwestern, and Viking Gas Transmission systems. It has been unanimously approved by the boards of both companies and is pending regulatory approval, including clearance under the Hart-Scott-Rodino Act.
ONEOK's president and CEO, Pierce H. Norton II, stated that the sale is a strategic move to optimize the company's asset portfolio and will enhance ONEOK's capital allocation within its integrated operating footprint. Norton emphasized the cultural alignment between the companies, particularly in their shared commitment to safety and reliability.
The Guardian Pipeline connects to several pipelines at the Chicago Hub near Joliet, Illinois, and serves local natural gas distribution and electric generation companies in Wisconsin. The Midwestern Gas Transmission is a bidirectional system with access to both the Utica and Marcellus Shale and multiple interstate pipelines at the Chicago Hub. Viking Gas Transmission also operates bidirectionally and interconnects with a major pipeline system at the U.S. border near Emerson (NYSE:EMR), Canada, and Marshfield, Wisconsin.
The sale proceeds are expected to improve ONEOK's financial flexibility and contribute to its deleveraging trend, aiming for a target leverage ratio of 3.5 times by 2026.
ONEOK, headquartered in Tulsa, Oklahoma, is an S&P 500 company and a managing member of EnLink Midstream, LLC (NYSE: NYSE:ENLC), owning 43% of EnLink's outstanding common units. The company operates a vast network of natural gas and liquid pipelines and is involved in the gathering, processing, fractionation, transportation, and storage of energy products.
This report is based on a press release statement, and the information herein is factual as provided by the involved companies. The transaction's completion is subject to regulatory approval and other customary closing conditions.
In other recent news, DT Midstream has announced a $1.2 billion agreement to acquire three natural gas transmission pipelines from ONEOK, Inc. The acquisition, which includes the Guardian Pipeline, Midwestern Gas Transmission, and Viking Gas Transmission, is expected to close between late 2024 and early 2025. DT Midstream's CEO, David Slater, noted that this move aligns with the company's strategy to focus on natural gas assets and will boost revenue from its pipeline segment.
Goldman Sachs (NYSE:GS) has revised its price target for DT Midstream to $74, maintaining a sell rating. This adjustment follows DT Midstream's recent third-quarter results, which revealed improved gathering margins that balanced weaker pipeline contributions. The investment bank's estimates account for improved gathering margins, a slightly slower ramp-up in volumes for 2025, the LEAP expansion, and delayed contributions from a carbon capture and storage project.
DT Midstream has increased its adjusted EBITDA guidance for 2024 to a range of $950 million to $980 million. The company anticipates increased gas gathering volumes by the end of 2024 and into the first half of 2025. Furthermore, DT Midstream is exploring new power and data center opportunities with six potential projects under discussion. These recent developments are essential for investors considering the company's future growth prospects.
InvestingPro Insights
As DT Midstream, Inc. (NYSE: DTM) prepares to acquire ONEOK's interstate natural gas pipelines, investors may find valuable insights from recent financial data and expert analysis. According to InvestingPro, DTM's market capitalization stands at $10.01 billion, reflecting its significant presence in the midstream sector.
The company's P/E ratio of 24.86 suggests that investors are willing to pay a premium for DTM's earnings, possibly due to its growth prospects and strategic acquisitions like the one mentioned in the article. This acquisition aligns with an InvestingPro Tip indicating that DTM has raised its dividend for 4 consecutive years, potentially signaling management's confidence in the company's financial stability and future cash flows.
DTM's revenue for the last twelve months as of Q3 2023 was $976 million, with a healthy revenue growth of 5.97% over the same period. The company's strong financial performance is further underscored by its impressive operating income margin of 50.82%, suggesting efficient operations and cost management.
Another relevant InvestingPro Tip notes that DTM is trading near its 52-week high, which could be attributed to investor optimism surrounding the company's expansion strategy, including this $1.2 billion pipeline acquisition.
For readers interested in a more comprehensive analysis, InvestingPro offers 12 additional tips on DTM, providing a deeper understanding of the company's financial health and market position.
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