Key Takeaways:
ONEOK's $4.425 billion cash purchase of Brazos Midstream's Permian Midland Basin gas assets, funded by a $9 billion Apollo minority equity investment, cuts its leverage to 3.25x debt-to-EBITDA without issuing common equity.
ONEOK agreed to buy Brazos Midstream's Permian Midland Basin natural gas gathering and processing assets for $4.425 billion in cash, a deal funded by a $9 billion nonvoting minority equity investment from Apollo that also extinguishes $5 billion of existing debt. The Tulsa, Oklahoma-based midstream operator said the transaction, expected to close in the fourth quarter of 2026, is immediately accretive to earnings and free cash flow per share.
"The acquisition expands our scale in the Permian Midland Basin, advances our integrated wellhead-to-water strategy and strengthens connectivity across our natural gas and NGL value chain," Pierce H. Norton II, ONEOK president and CEO, said. "The combination of this acquisition with the minority equity investment demonstrates our commitment to creating shareholder value while accelerating our deleveraging to 3.25 times debt-to-EBITDA."
The deal implies a multiple of about 7.5 times estimated 2027 EBITDA, including roughly $80 million of full-year synergies, and about 6.0 times estimated 2028 EBITDA as contracted volumes ramp. The Brazos Midland system adds approximately 600,000 dedicated acres under long-term fixed-fee contracts with a weighted average remaining term of more than 12 years, backed by 14 active drilling rigs from producers including ExxonMobil, Diamondback Energy and Double Eagle. Following completion of the Cassidy II processing plant in the third quarter of 2027, the system will include about 700 miles of gathering infrastructure and 1.2 billion cubic feet per day of processing capacity, more than doubling ONEOK's Midland Basin processing to roughly 2.3 Bcf/d.
The financing structure is the deal's defining feature. Apollo invests $9 billion in exchange for a Class B interest in a newly formed ONEOK Holdings, receiving 15 percent of quarterly operating-company cash flow with a return capped at a 7.0 percent internal rate of return for the first nine years, stepping to 7.35 percent in year 10 and 7.85 percent by year 15. Distributions above the cap reduce Apollo's capital account, with all value creation above the capped return accruing to ONEOK common shareholders. The Class B interest carries no liquidation preference, no board representation, and is structurally subordinate to all ONEOK senior debt. ONEOK can acquire the remaining minority interest beginning eight years after closing, or earlier if the balance falls to $200 million.
ONEOK plans to use $5 billion of the proceeds to extinguish debt, including repaying its $1.2 billion term loan, exercising make-whole calls on certain senior notes, and launching a cash tender offer for notes trading below par. That reduces expected pro forma 2027 leverage to about 3.25 times debt-to-EBITDA, more than achieving the company's prior target without diluting common shareholders. Credit rating agencies reviewed the investment and consider it credit-enhancing, with ONEOK expecting full equity credit; under GAAP it is reported as a noncontrolling interest within permanent equity.
The transaction strengthens ONEOK's integrated Permian-to-Gulf Coast strategy by expanding scale in one of North America's most active producing regions, adding fee-based contracted growth, and enhancing connectivity across its natural gas and NGL value chain, including the West Texas NGL Pipeline and the soon-to-be-completed Medford fractionation facility. ONEOK also obtains a Permian Midland Basin-wide area of mutual interest with a key private producer, creating additional growth capture. The acquisition increases momentum toward the high end of ONEOK's mid- to high-single-digit adjusted EBITDA growth target over the next five to seven years and accelerates flexibility for potential dividend increases and share buybacks.
The Apollo investment is expected to close in the first half of September, subject to customary conditions, while the Brazos acquisition requires Hart-Scott-Rodino Act clearance. Barclays served as sole financial advisor to ONEOK on the acquisition and lead advisor on the equity investment, with Lazard also advising on the financing; Latham & Watkins provided legal counsel. RBC Capital Markets advised Apollo, with Milbank as legal counsel, while Akin Gump advised Brazos Midstream.
The deal underscores continued consolidation in Permian energy infrastructure, where midstream operators are paying up for contracted acreage to lock in fee-based cash flows. For ONEOK, the structure lets it fund growth and deleverage simultaneously while keeping its common share count unchanged — a template other midstream players may follow as private capital seeks capped-return stakes in cash-generative infrastructure.
This article is for informational purposes only and does not constitute investment advice.
