Oneok (OKE) is making a big move in the Permian Basin, and investors seem to like it. The midstream giant announced Monday that it will acquire Brazos Midstream's Permian Midland Basin assets for $4.425 billion, a deal that more than doubles its processing capacity and solidifies its position in one of the most prolific oil and gas regions in the U.S.
Shares were up 1.31% at $96.00 in premarket trading, inching closer to the 52-week high of $97.90. The market's reaction suggests this deal is being viewed as a strategic win, not just a pricey acquisition.
The Deal at a Glance
Here's the breakdown: Oneok is paying $4.425 billion for Brazos Midstream's natural gas gathering and processing assets in the Permian Midland Basin. That price tag works out to roughly 7.5 times estimated 2027 EBITDA, including $80 million in annual synergies, and 6.0 times estimated 2028 EBITDA. Not cheap, but not outrageous for a high-quality asset in a hot basin.
To fund the acquisition, Oneok is bringing in Apollo (APO) as a financial partner. Apollo's funds and affiliates will make a $9 billion nonvoting minority equity investment, with $5 billion of that going to pay down Oneok's existing debt. The investment carries a 7% IRR cap for the first nine years, which is below Oneok's cost of publicly traded equity. Distributions above that cap will gradually reduce the minority equity balance, meaning more economic value flows to Oneok common shareholders over time. It's a clever structure that lets Oneok tap into Apollo's capital without diluting existing shareholders.
Oneok plans to retire about $5 billion of debt through a combination of repayments, make-whole calls, and a tender offer for senior notes, most of which are trading below par. That's a smart move in a rising rate environment, and it should immediately lower pro forma 2027 leverage to about 3.25 times debt-to-EBITDA. That's ahead of the company's previous deleveraging target, and it's all being done without issuing common equity.
As of June 30, Oneok had $161 million in cash and cash equivalents, so this deal is clearly being financed through the Apollo investment and debt, not the balance sheet.
What Oneok Is Getting
Brazos Midstream brings a lot to the table. The assets include about 600,000 dedicated acres under fixed-fee contracts with an average remaining term of more than 12 years. That's a long-term, stable revenue stream, which is exactly what midstream investors like to see. There are also 14 active rigs operated by producers like ExxonMobil, Diamondback Energy, and Double Eagle, so there's plenty of drilling activity to feed the system.
Once the Cassidy II processing plant is completed in the third quarter of 2027, the system will have about 700 miles of gathering infrastructure and 1.2 Bcf/d of processing capacity across seven Midland Basin counties. Oneok also gains a basin-wide AMI (area of mutual interest) with a key private producer, which could lead to more opportunities down the road.
Combined with Oneok's existing Midland Basin infrastructure, this will more than double its processing capacity to approximately 2.3 Bcf/d. That makes Oneok one of the largest integrated gathering and processing platforms in the region, which is a big deal in a business where scale and density matter.
Why This Deal Makes Sense
Oneok is a diversified midstream service provider, handling natural gas gathering, processing, storage, and transportation, as well as natural gas liquids (NGL) transportation and fractionation. It also has operations in refined products and crude oil, connecting producers, refiners, and end markets across key U.S. basins.
That business model rewards scale and basin density. The more infrastructure you have in a region, the more efficient you become, and the more you can leverage your existing assets. Adding Brazos Midstream's Permian assets deepens Oneok's footprint in one of the most active production regions in the country, which is exactly what the company needs to drive long-term growth.
The deal is expected to strengthen Oneok's Permian-to-Gulf Coast strategy by expanding Midland Basin scale, adding long-term fee-based contracts, improving natural gas and NGL connectivity, and enhancing capital efficiency. It's also projected to be immediately accretive to earnings and free cash flow per share, supported by contracted volume growth.
Over the next five to seven years, the acquisition should push Oneok toward the upper end of its mid- to high-single-digit adjusted EBITDA growth target. It also gives the company more flexibility to return capital to shareholders through potential dividend increases and share repurchases, which is always a nice selling point.
The combined system will support volume growth, better capital utilization, and greater use of downstream assets, including the West Texas NGL Pipeline and Medford fractionation facility. And as recurring synergies kick in, the effective acquisition multiple should move closer to Oneok's historical organic-build levels.
The Bottom Line
This is a bold move by Oneok, and it's one that could pay off handsomely if the Permian continues to deliver. The Apollo financing structure is creative, the debt reduction is prudent, and the strategic fit is clear. Investors seem to be on board, with shares trading near their 52-week high.
Of course, there are risks. The Permian is a competitive place, and commodity prices can be volatile. But with long-term contracts, a strong producer base, and a solid growth outlook, Oneok is positioning itself to be a major player in the region for years to come.
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