Comstock Resources has divested a 27% non-controlling common equity interest in its midstream subsidiary Pinnacle Gas Services to funds managed by Sixth Street for $600m.
The transaction values Pinnacle Gas Services, currently a Delaware limited liability company, at an enterprise value of $2.2bn.
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Pinnacle Gas Services owns and runs the Pinnacle gathering and treating system, providing infrastructure for Comstock’s Western Haynesville natural gas development in East Texas.
Following the sale, Comstock will retain a 73% controlling equity interest valued at around $1.6bn. The company will continue to manage and operate Pinnacle under a management services agreement.
The investment proceeds were used by Comstock to eliminate all preferred equity securities at Pinnacle for $445m plus accrued dividends. They were also used to pay off outstanding indebtedness, cover transaction costs and provide additional working capital.
The transaction will decrease Pinnacle Gas Services’ fixed charges by around $40m per year due to the extinguishment of debt and preferred equity.
Comstock CEO M. Jay Allison said: “This transaction is another validation of the future potential of Comstock’s Western Haynesville acreage, which is well positioned to service the growing demand for natural gas in our region.
“The Western Haynesville represents one of the largest undeveloped natural gas resources with access to the growing demand along the Gulf Coast and will also serve the recently announced Texas Power Generation Hub in Anderson County, Texas.
“This transaction with Sixth Street represents an important milestone for Comstock and a strong validation of the value we have created in the Western Haynesville.”
Comstock is an independent natural gas producer active in the Haynesville Shale, with operations centred in north Louisiana and east Texas. The company holds an acreage of 540,000 net acres in the Western Haynesville.
If Sixth Street meets specified return thresholds, its stake in Pinnacle Gas Services will decrease from 27% to 19.5%, while Comstock’s interest would rise from 73% to 80.5%. This compares to the 70% equity interest that Comstock would have held if the preferred units had not been redeemed.
Sixth Street partner and co-head of energy and co-head of global infrastructure Zack Winegrad said: “The transaction highlights Sixth Street’s focus on providing large-scale, flexible capital solutions to support the development of critical energy infrastructure needed to meet the rapid growth in energy demand from data centres, hyper-scalers, global LNG [liquefied natural gas], and the secular electrification trends under way in the economy more broadly.
“Pinnacle’s midstream infrastructure sits at the heart of one of the most prolific natural gas basins in North America, and we are excited to invest alongside the Comstock team as they execute on a compelling growth plan.”
Jefferies served as financial adviser and O’Melveny & Myers as legal counsel to Comstock on the transaction.
Financial advice to Sixth Street was provided by Wells Fargo and RBC Capital Markets, with Latham & Watkins acting as legal counsel.
