By Sumit Saha
July 27 (Reuters) – Expand Energy said on Monday it would buy privately held natural gas marketer Twin Eagle Holdings from Five Point Infrastructure for $1.25 billion to expand its marketing business across North America.
With U.S. natural gas demand expected to grow, producers are increasingly expanding into marketing and logistics businesses to improve margins and gain greater control over how gas reaches end-users.
Founded in 2010, Twin Eagle is an independent natural gas and power marketer, with operations spanning wholesale marketing, asset management, logistics and analytics.
Following the deal’s expected completion in the third quarter, it will operate as a wholly owned subsidiary of Expand, with key members of Twin Eagle’s management team, including Chief Executive Jeremy Davis, staying on, the companies said.
Expand now expects $750 million per year of incremental free cash flow from its marketing and commercial strategy, a 50% jump from its previous target.
ANALYSTS SEE BENEFITS
With this acquisition, Expand would transform from North America’s largest natural gas producer to one of the leading integrated gas companies, analysts said.
The deal significantly bolsters Expand’s marketing and commercial sales capabilities, RBC analyst Scott Hanold said and added that the price paid is initially at the higher end of the spectrum.
“We think this will have a mixed view from investors as the strategy is digested. This is different to gas-producing peers, but a long-term direction we see occurring,” Hanold said.
Twin Eagle currently markets more than 5 billion cubic feet (bcf) of natural gas per day and manages about 44 bcf of storage capacity. After the deal, however, it would market about 14 bcf of gas per day.
The combined company is expected to reach about 90% of the U.S. and Canadian natural gas market through access to key demand centers, the companies said.
Expand plans to fund the acquisition through a mix of cash on hand and borrowings under its revolving credit facility.
(Reporting by Sumit Saha in Bengaluru; Editing by Shinjini Ganguli and Joyjeet Das)
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