Expand Energy announced a $1.25 billion acquisition of Twin Eagle Holdings, a privately held natural gas and power marketer, as part of a strategy to enlarge its marketing and logistics operations across North America. The companies said the transaction is expected to be completed in the third quarter, after which Twin Eagle will operate as a wholly owned subsidiary of Expand with key members of its management team staying on, including Chief Executive Jeremy Davis.
Founded in 2010, Twin Eagle participates across wholesale marketing, asset management, logistics and analytics. Prior to the deal, Twin Eagle marketed more than 5 billion cubic feet (bcf) of natural gas per day and managed roughly 44 bcf of storage capacity. Post-close, Expand said the business would market about 14 bcf of gas per day.
Expand framed the acquisition as a way to capture more value along the commercial chain as U.S. natural gas demand is expected to grow. The company said producers are increasingly adding marketing and logistics capabilities to improve margins and to exert greater control over how gas reaches end-users. In that context, Expand now expects $750 million per year of incremental free cash flow from its marketing and commercial strategy - a 50% increase from its prior target.
Strategic and market implications
With the Twin Eagle assets, the combined entity will have expanded access to key demand centers in the U.S. and Canada. The companies said the combined operation is expected to reach about 90% of the U.S. and Canadian natural gas market through that improved access.
Analysts said the acquisition shifts Expand from being primarily a large U.S. natural gas producer toward becoming one of the more integrated gas companies in North America. RBC analyst Scott Hanold noted that the deal "significantly bolsters Expand's marketing and commercial sales capabilities" while adding that the price paid is initially at the higher end of the spectrum. Hanold also suggested investor reaction may be mixed as the strategy is digested, calling this a different direction compared with gas-producing peers but one he sees occurring over the long term.
Financing and structure
Expand indicated it plans to fund the acquisition through a combination of cash on hand and borrowings under its revolving credit facility. Following closing, Twin Eagle will be operated as a wholly owned subsidiary of Expand with members of Twin Eagle’s leadership team remaining in place, including Chief Executive Jeremy Davis.
The companies highlighted that the transaction bolsters Expand's marketing and commercial sales capabilities and increases the scale of marketed volumes and storage assets. Exact timing for regulatory clearances or other closing conditions was not detailed beyond the expectation that the deal will finalize in the third quarter.