ONEOK will pay $4.425 billion in cash for Brazos Midstream's Permian Midland Basin natural gas gathering and processing assets, the company said Aug. 30. The purchase is funded by a $9 billion nonvoting minority equity investment from funds and affiliates managed by Apollo (NYSE: APO), and ONEOK plans to use $5 billion of that money to pay down existing debt. ONEOK said the deal will be immediately accretive to earnings and free cash flow per share, and it required no issuance of new common equity.

Deleveraging without new equity

The $5 billion debt extinguishment plan combines repayments, make-whole calls and a tender offer for senior notes, most of which are currently trading below par, according to ONEOK. The company expects the paydown to cut pro forma 2027 leverage to about 3.25 times debt-to-EBITDA, which it said goes beyond its previous leverage target. ONEOK said the lower debt load also gives it more room for organic growth spending, particularly in the Permian Basin, along with potential dividend increases and share buybacks.

How the Apollo investment is structured

Apollo will put $9 billion into a newly formed holding company, ONEOK Holdings, L.L.C., in exchange for a Class B interest that is structurally subordinate to ONEOK's existing debt. That interest is set to receive 15% of quarterly cash flow from ONEOK, L.L.C. operations. Because those distributions are expected to exceed Apollo's capped return of a 7.0% internal rate of return for the first nine years, Apollo's capital account balance is expected to decline substantially over time, which ONEOK said increases the value that accrues to its common shareholders. The investment carries no liquidation preference. ONEOK has the option to acquire any remaining minority interest starting eight years after closing, or earlier if Apollo's capital account balance falls to $200 million before then.

"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," said Pierce H. Norton II, ONEOK president and CEO. Apollo Partner Jamshid Ehsani said the deal reflects the firm's ability to deliver "flexible, high-grade capital solutions at scale."

A bigger Permian Midland Basin platform

The Brazos Midland assets come with about 600,000 dedicated acres under long-term, fixed-fee contracts with a weighted average remaining term of more than 12 years, and are currently supported by 14 active drilling rigs from producers including ExxonMobil, Diamondback Energy and Double Eagle. Once the Cassidy II processing plant expansion is complete, expected in the third quarter of 2027, the Brazos Midland system will include about 700 miles of gathering infrastructure and 1.2 billion cubic feet per day of processing capacity across seven core Permian Midland Basin counties. The deal also gives ONEOK a Permian Midland Basin-wide area of mutual interest with a private producer.

ONEOK said the acquisition more than doubles its Midland Basin processing capacity to about 2.3 Bcf/d, including plants currently under construction, and links to its existing West Texas NGL Pipeline and its soon-to-be-completed Medford NGL fractionation facility.

The price

ONEOK valued the deal at approximately 7.5 times estimated 2027 EBITDA, which includes about $80 million of expected full-year synergies, and about 6.0 times estimated 2028 EBITDA as the Brazos platform grows and integrates further with ONEOK's existing Permian Basin assets.