Aug. 10 (UPI) -- U.S. energy company Apache Corp. said it was forming a strategic partnership to form a $3.5 billion pipeline company meant to cater to Texas shale oil and gas.
With U.S. production trends straining existing pipeline capacity, Apache said it would contribute some of its pipeline assets in the Permian shale to Kayne Anderson Acquisition group in order to create Altus Midstream.
"The transaction with Kayne Anderson Acquisition Corp. creates a premier midstream enterprise to service Alpine High, an enormous, highly economic upstream resource base in the Permian Basin, the most active oil and gas region in the world," Apache President and CEO John Christmann IV said in a statement.
The midstream component of the energy sector refers to transportation, storage and marketing side of the industry.
The U.S. Energy Information Administration expects Permian oil production to increase 2 percent from July to average 3.4 million barrels per day. Gas production is forecast to increase the same percentage. That makes Permian the largest oil producer in the Lower 48 and the second-largest gas producer behind the Appalachian shale near Ohio and Pennsylvania.
The new company, Altus, will hold assets in natural gas and crude oil pipeline projects in the Permian shale and at various points along the southern coast of Texas. Assuming 354.4 million common shares, the new company would be valued at $3.5 billion.
"Altus Midstream expects to have more than $900 million of cash and no debt at closing and is projected to be free-cash-flow positive by 2021," Apache's senior vice president for midstream operations Brian Freed said. "With this strong financial position, the company will have substantial borrowing capacity to accommodate its growth plans."
Freed will become CEO of Altus once the agreement is finalized.
Apache made no reference to the specific construction of new pipelines for Texas reserves.
Ed Longanecker, the president of the Texas Independent Producers & Royalty Owners Association, told UPI last month that without concessions on steel tariffs imposed by U.S. President Donald Trump, producers may be forced to cut back on production and revise their drilling programs.