There’s been a lot of M&A activity the past couple of years among oil and gas producers — midstreamers too. That makes sense. Joining forces can provide all kinds of opportunities: for synergy, economies of scale, and expansion within (or into) key production areas, to name just a few. Well, energy-industry consolidation isn’t limited to E&Ps and midstream companies. Just recently, two major providers of contract compression services — critical to the gathering and processing of natural gas in the Permian and other plays — announced that they will be combining to form what they say will be the largest firm in that space. In today’s RBN blog, we’ll look at the gas compression services sector and the plan by Kodiak Gas Services to acquire CSI Compressco LP.
Consolidation within the oil and gas industry has been a primary theme in the RBN blogosphere for a while now, so much so that we devoted two Drill Down Reports to the topic last fall, one on E&Ps and the other on midstream companies. Of course, more M&A followed and we blogged about that too. Among other things, we discussed Chevron’s $60 billion deal to buy Hess Corp., Occidental Petroleum’s purchase of CrownRock LP, and Kinder Morgan’s acquisition of NextEra Energy Partners’ STX Midstream assets in South Texas.
Canadian crude output is rising, requiring new export routes. As traditional pathways face constraints, the U.S. Rockies—especially the Guernsey, WY hub—are emerging as key corridors for moving Canadian heavy crude to downstream markets, including the Gulf Coast.
Today, we shift our attention to an important — but often overlooked — sector of the oil and gas industry, namely the companies that specialize in providing contract compression services. If you’re a generalist and consider this a little too specific and esoteric, think again, because the services these companies provide are absolutely essential to the broader industry. As its name suggests, natural gas compression is a mechanical process under which gas is compressed to a smaller volume, resulting in higher pressure. Natural gas pipeline systems are designed to move gas at increasing pressure from the wellhead to the end customer, which means that compression is required throughout the gas value chain.
Gas compression services companies provides the horsepower (hp) and related compression equipment needed to provide the compression, generally under long-term fixed-revenue contracts with inflation-protection mechanisms. Typically, these companies focus on the earlier stages of the value chain, from the wellhead to the tailgate of the gas processing plant — or, for “dry” gas that doesn’t need processing, directly from the well to the high-pressure transmission pipeline. By using contract compression services provided by companies like Archrock Inc., USA Compression Partners and Kodiak Gas Services rather than buying, installing, operating and maintaining their own compression equipment, E&Ps and midstreamers can focus their capex dollars and their attention on their primary businesses.
A couple of weeks ago, Kodiak Gas Services — currently the U.S.’s third-largest gas compression services provider, with about 3.22 million hp of active compression capacity — announced that it had reached a definitive agreement to acquire CSI Compressco and its 1.04 million hp of capacity. The all-stock deal is valued at about $854 million, including the assumption of $619 million of CSI debt. This is a zero-premium deal, as the December 19 offer valued CSI at $1.65/share, just a touch below its December 18 closing price of $1.69/share. CSI’s growth has been constrained by debt and it was in the process of renegotiating its liabilities. Assumption of debt represents 72% of the total transaction price, which calculates CSI’s market value at $235 million. Kodiak is planning to refinance CSI’s $619 million in debt at what will probably be a significantly lower cost. It looks like a logical deal for both parties, with Kodiak expecting the higher cash flows and synergies to whittle away the added debt. The deal is expected to make Kodiak the nation’s #1 gas compression services company, with about 4.26 million hp of compression capacity.
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About the song
“Someday We'll Be Together” was written by Johnny Bristol, Jackey Beavers and Harvey Fuqua. The song was originally recorded by Johnny & Jackey and released on the Tri-Phi label. Released as a single in November 1961, it got moderate airplay in the Midwest. In 1969, Johnny Bristol, by then staff-songwriter for Motown Records, was recording a new instrumental version of the song by Jr. Walker and the All Stars. Motown President Berry Gordy heard the track and at first thought it would be a great candidate for Diana Ross's first single, since she would be leaving The Supremes soon to become a solo artist. He then decided to use it as the last Supremes single release.
Using Diana Ross’s lead vocals, you can hear Johnny Bristol’s guide vocals and ad-libs on the final mix. In an ironic twist, Bristol decided to use Maxine and Julia Waters (“the Waters Sisters”) on the backing vocals instead of Supremes backing vocalists Mary Wilson and Florence Ballard. So, in a way, the last hit single by Diana Ross and The Supremes turned out to be the first solo effort by Diana Ross. (Perhaps it should have been titled, “Someday We Won't Be Together.”)
Released as a single from Diana Ross and The Supremes album, Cream of the Crop, in October 1969, it went to #1 on the Billboard Hot 100 and R&B Singles charts. The song was the final number performed by Diana Ross and The Supremes at their farewell concert at the Frontier Hotel in Las Vegas in January 1970. Personnel on the record were: Diana Ross (lead vocals), Johnny Bristol, the Waters Sisters (backing vocals), and instrumentation by various members of Jr. Walker & the All Stars, the Funk Brothers, along with the Detroit Symphony Orchestra.
Cream of the Crop was the 18th studio album by Diana Ross and The Supremes. It was the final Supremes studio album to feature Diana Ross as the lead vocalist. Songs on the album were recorded between 1966 and 1969 at Hitsville U.S.A. and Studio A in Detroit, with Johnny Bristol, Berry Gordy and Smokey Robinson producing. Released in November 1969, the album went to #3 on the Billboard R&B Albums chart and #33 on the Billboard 200 Albums charts. It has been certified Gold by the Recording Industry Association of America.
The Supremes were an American soul music girl group formed in Detroit in 1959 as the Primettes. After signing with Motown Records in 1962, the group changed their name to The Supremes. The core group of Diana Ross, Mary Wilson and Florence Ballard went on to become one of the most successful acts of the 1960s. They released 29 studio albums, four live albums, 32 compilation albums, two soundtrack albums and 66 singles. They are members of the Rock and Roll Hall of Fame and Vocal Group Hall of Fame, and have a Grammy Lifetime Achievement Award and a star on the Hollywood Walk of Fame. Ten members passed through the group until their official breakup in 1977. Florence Ballard died in 1976; Mary Wilson died in 2021. Diana Ross continues to record, perform and act. She will begin her Legacy 2024 Tour in February 2024.
