Eureka Hunter Buys TransTex Gas, Plans for Marcellus/Utica

Magnum Hunter subsidiary Eureka Hunter announced yesterday they are buying TransTex Gas Services, a natural gas treatment company based in Houston, TX for $58.5 million. One of Eureka Hunter’s objectives in purchasing the company is to grow the TransTex business in the Marcellus and Utica Shale.

From the Magnum Hunter press release:

Magnum Hunter Resources Corporation announced today that Eureka Hunter Holdings, LLC has entered into an Asset Purchase Agreement with TransTex Gas Services, LP, a privately-held company based in Houston, TX, for the acquisition of substantially all of the assets of TransTex, excluding the assumption of existing indebtedness. The purchase price is $58.5 million, consisting of approximately $46.8 million in cash and $11.7 million in common units of Eureka Hunter. Funding for the cash portion of the acquisition will be provided by the previously announced investment commitment from an affiliate of ArcLight Capital Partners. The acquisition is subject to certain conditions and is expected to close on or about April 2, 2012.

TransTex is primarily engaged in the business of treating natural gas, including the leasing of equipment to third parties in need of natural gas treating. TransTex is the largest privately-held contract gas treating company in the United States with treating plants currently deployed in seven states serving approximately 30 different customers. TransTex’s services are offered to a broad range of producers and midstream operators which includes gas treating, processing, dehydration, pressurized NGL storage tanks, H2S scavengers, power generation and well head separation facilities. The TransTex fleet is comprised of 50 amine plants to treat and remove CO2 and H2S from natural gas and an interest in a fleet of hydrocarbon dew point control plants.

TransTex was started in 2006 and presently has a staff of 25 full-time employees, including a complete engineering and fabrication team that designs and fabricates treating plants in a fabrication yard located at Hallettsville, Texas. This facility is in very close proximity to the Eagle Ford Shale drilling activity in southwest Texas where Magnum Hunter is presently active with four drilling rigs operating today. TransTex enjoys a dominant market position in the gas treating business with respect to plants sized less than 60 gallons per million ("GPM"), and offers plants ranging from as small as 5 GPM to as large as 300 GPM.

Members of the TransTex management team, including Greg Sargent, the President and co-founder of TransTex, will join the Company and continue to manage the acquired business subsequent to closing. Mr. Sargent has over 30 years of experience in the natural gas industry with senior roles in engineering, operations and business development. In addition, TransTex’s senior management team includes talented individuals with specific engineering and operational expertise in gas processing. This additional expertise will allow Eureka Hunter to grow its presence in the processing side of the business as it looks to further expand existing operations in Ohio and West Virginia.

The acquisition of TransTex will be immediately accretive to Magnum Hunter and its subsidiaries. TransTex brings an incremental $15.0 million in forecasted 2012 revenues and an estimated EBITDA of approximately $7.5 million for the year. The post transaction enterprise value of Eureka Hunter has now been established at a value of $458.5 million. Magnum Hunter will retain an approximate 72% equity ownership in Eureka Hunter following the closing of TransTex, valuing its remaining interest in Eureka Hunter at approximately $299 million. In addition, Magnum Hunter received a $60 million distribution from the ArcLight initial investment, bringing total retained value to Magnum Hunter of $359 million (approximately $2.71 per equivalent Magnum Hunter common share).

Management Comments
Mr. Gary C. Evans, Chairman of the Board and Chief Executive Officer of Magnum Hunter commented, "The addition of the TransTex’s group of assets and management team to Eureka Hunter is a another step in our overall business plan which makes for a very comprehensive and well rounded midstream services company. Eureka Hunter will now have immediate access and the ability to offer producers skid mounted wellhead treating and field processing plants ideally suited for specific customer needs. In addition, TransTex will broaden its footprint as Eureka Hunter continues to expand its gathering system in the Marcellus Shale of West Virginia and into the Utica Shale in eastern Ohio. We also believe the management team at TransTex will be able to identify additional business opportunities in the gathering and processing business for Eureka Hunter. With the acquisition of TransTex, we are significantly closer to the MLP objective we are ultimately seeking."

Mr. Greg Sargent, President and co-founder of TransTex, commented, "We are very excited about joining the Eureka Hunter team. We have known Gary and the Magnum Hunter management team for many years and we look forward to continuing our growth in both natural gas treating and processing in conjunction with Eureka Hunter’s gas gathering business as well as Magnum Hunter’s upstream business. This transaction will give us the strong balance sheet we need to take our business to the next level. I believe TransTex and Eureka Hunter will create a very formidable midstream company."*

*Magnum Hunter Resources (Mar 22, 2012) – Eureka Hunter Agrees to Acquire TransTex Gas Services, LP for $58.5 Million