Apollo Backs ONEOK Permian Expansion with $9B Capital

Apollo has committed a substantial $9 billion in structured equity to bolster ONEOK's strategic expansion within the prolific Permian Basin. This significant capital infusion is earmarked to finance ONEOK's acquisition of Brazos Midstream's Permian Midland Basin gathering and processing assets, valued at $4.425 billion, while simultaneously retiring approximately $5 billion in existing debt.

The innovative financing structure involves Apollo's funds and affiliates acquiring a non-voting, minority equity interest in a newly established holding company. This entity sits subordinate to ONEOK's senior debt, ensuring no impact on the company's credit ratings, which are expected to grant full equity credit for the investment. The structure is designed to amortize over time, with Apollo's return capped at an initial 7.0% internal rate of return for the first nine years, stepping up thereafter. Crucially, ONEOK retains the flexibility to increase distributions to Apollo, accelerating the reduction of Apollo's capital balance and allowing all value exceeding the capped return to accrue to ONEOK's common shareholders.

This strategic move by ONEOK more than doubles its processing capacity in the Midland Basin to approximately 2.3 billion cubic feet per day. The acquired Brazos Midstream system boasts around 600,000 dedicated acres under long-term, fixed-fee contracts with an average remaining term exceeding 12 years. The system is currently supported by 14 active rigs from major producers such as ExxonMobil, Diamondback Energy, and Double Eagle. Upon completion of the Cassidy II plant in the third quarter of 2027, the integrated system will encompass roughly 700 miles of gathering pipelines.

The acquisition price for Brazos Midstream's assets was approximately 7.5 times estimated 2027 EBITDA, factoring in roughly $80 million in annual synergies, a multiple that is projected to decrease to around 6.0 times estimated 2028 EBITDA. ONEOK anticipates the transaction will be immediately accretive to earnings and free cash flow per share. This financial maneuver is expected to reduce ONEOK's pro forma 2027 leverage to approximately 3.25 times debt-to-EBITDA, a key target the company can now achieve without diluting existing shareholders. This deleveraging frees up significant financial capacity for organic growth initiatives, potential dividend enhancements, and share repurchase programs.

Jamshid Ehsani, Partner at Apollo, highlighted the firm's capacity to deliver large-scale, adaptable capital solutions. "ONEOK has established one of the nation's most extensive and varied midstream infrastructures, vital for meeting escalating domestic and international energy demands," Ehsani stated. "This collaboration underscores Apollo's proficiency in structuring sophisticated financial instruments aligned with ONEOK's long-term strategic vision." The acquisition is slated for closure in the fourth quarter of 2026, pending regulatory approval, with the Apollo investment expected to finalize in early September.

The energy midstream sector continues to attract significant investment as demand for natural gas infrastructure grows. Companies like ONEOK are strategically expanding to capitalize on production growth in key basins like the Permian. The structured equity approach employed by Apollo offers a unique avenue for midstream operators to fund large-scale projects and acquisitions while optimizing their balance sheets and shareholder returns, a model likely to see continued adoption in the sector.