OKLAHOMA CITY, July 20, 2014 – Compressco Partners, L.P. (NASDAQ: GSJK), known within the sector as Compressco Partners Lp, has announced a significant strategic move to acquire Compressor Systems, Inc. (CSI) for $825 million in cash. This landmark acquisition is set to dramatically expand Compressco’s operational scale and service capabilities in the natural gas compression industry.
This acquisition marks a transformative step for Compressco, increasing its total horsepower capacity from approximately 187,000 to over 1,045,000. By integrating CSI’s extensive resources, Compressco Partners LP will be equipped to offer a broader spectrum of compressor packages, ranging from smaller 20 HP units to large-scale 2,370 HP units. This expanded range positions the Partnership to serve a wider array of compression service demands across the market. The move underscores the company’s commitment to growth and enhancing its service portfolio for customers across the energy sector.
Key Acquisition Details
Strategic Expansion and Service Diversification
The acquisition of CSI is a strategic move that significantly broadens Compressco Partners LP‘s service offerings. CSI, a major player in the natural gas compression sector since 1971, brings a wealth of experience and resources to Compressco. Based in Midland, Texas, CSI is recognized as the largest privately held, full-service natural gas compression provider in the United States. Their operations encompass the fabrication, sale, and maintenance of natural gas compressors, alongside providing comprehensive compression services across the entire natural gas production and transportation cycle.
CSI’s fleet is a substantial asset, featuring over 275 units in the 1,000 horsepower and larger range. Beyond natural gas compression, CSI also fabricates and sells engine-driven oilfield fluid pump systems, primarily for the international market, adding another dimension to the combined entity’s capabilities. This acquisition allows Compressco Partners LP to tap into new market segments and offer integrated solutions that span a wider range of customer needs within the energy industry.
Financial Strength and Transaction Structure
The financial details of the acquisition highlight the scale and ambition of Compressco Partners LP‘s growth strategy. CSI’s financial performance in the twelve months leading up to March 31, 2014, showed aggregate revenues of $311 million and an EBITDA of $82.3 million, demonstrating the robust financial health of the company being acquired.
To fund this significant transaction, Compressco has secured committed financing, anticipating the deal to close in early August. The financial structure is expected to include approximately $400 million from public equity issuance and $350 million from publicly-rated senior notes. The remaining balance will be drawn from a $400 million revolving credit facility. TETRA Technologies, Inc. (TETRA), the indirect 100% owner of Compressco’s general partner, is set to support the acquisition by purchasing common units in the equity offering, contributing up to $40 million to maintain its approximate 2% general partner interest. This financial strategy underscores the strong backing and confidence in the future success of Compressco Partners LP.
Image alt text: Compressco Partners LP Logo: A stylized blue flame icon next to the company name “Compressco Partners L.P.” in dark grey text, representing energy and partnership in the natural gas compression industry.
Strategic Benefits and Future Outlook
Ronald J. Foster, President of Compressco Partners LP, expressed enthusiasm about the acquisition, stating, “I am thrilled to announce the acquisition of CSI. The combined company will bring together two industry leaders, each with a strong reputation for ‘Best in Class’ service, that will provide value-driven services for our customers, generate strong returns for unit holders, and continue to provide a safe, long-term work environment for employees.” He emphasized that the acquisition creates a complementary portfolio of compressor units and services, addressing a wide range of applications across the oil, liquids, and natural gas markets, both domestically and internationally.
Mr. Foster further elaborated on the strategic rationale, noting that this transaction significantly advances Compressco Partners LP‘s “scale through growth” strategy, which involves pursuing both organic growth and M&A opportunities. The expanded services will now include production enhancement at the wellhead, vapor recovery at production facilities, gas-lift artificial lift, and infrastructure compression for midstream and downstream customers. The anticipated synergies, estimated between $5 million and $10 million annually starting in 2015, are expected to arise from factors such as increased critical mass, complementary fleets and services, broader market exposure in shale basins, and leveraged opportunities for geographic and technological expansion.
Looking ahead, Tim Knox, CSI’s current President, will lead the combined organization, while Ronald J. Foster will assume the role of Senior Vice President and Chief Marketing Officer, and James Rounsavall will continue as Chief Financial Officer. This leadership structure is designed to ensure continuity and leverage the combined expertise of both Compressco Partners LP and CSI.
Anticipated Distribution Increase and Growth Trajectory
Compressco Partners LP management anticipates a positive financial impact from the acquisition, expecting to recommend a 12-14% increase in the cash distribution per outstanding common unit for the quarter ending December 31, 2014. This projection is compared to the $0.4525 distribution per unit for the quarter ended June 30, 2014, indicating a significant potential uplift for investors.
To meet the growing demand for compression services, Compressco Partners LP plans to increase capital expenditures to between $90 and $100 million in 2015. This investment is expected to drive incremental revenues and facilitate further increases in cash distributions, while maintaining a coverage ratio of 1.2 times distributable cash flow to distributions.
Following the completion of the transaction, TETRA’s ownership in Compressco Partners LP is expected to decrease to approximately 46%. However, TETRA will retain 100% ownership of the Partnership’s general partner and continue to consolidate Compressco’s financial results.
This acquisition positions Compressco Partners LP as an even stronger leader in the compression services market, with expanded capabilities, a broader service portfolio, and a commitment to delivering increased value to its partners and stakeholders.
Forward-Looking Statements
This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, particularly those anticipating benefits, financial performance, and growth post-acquisition. These statements are based on current expectations and are subject to risks and uncertainties, including the successful integration of CSI and realization of expected synergies. Actual outcomes may differ materially. Investors are advised to review Compressco Partners’ filings with the Securities and Exchange Commission for detailed risk factors.
