Energy Transfer has disclosed no EBITDA for the $2.625 billion acquisition. Interest on the cash and the share of current cash flow attributable to 33.3 million new units add up to about $229 million a year, capping the multiple near 11.5 times.
Energy Transfer has agreed to pay $2.625 billion for Vaquero Midstream but disclosed no EBITDA or purchase multiple. It did say the deal is "immediately accretive" to distributable cash flow per common unit. That claim implies a cash flow hurdle: we estimate the price at about 11.5 times Vaquero's distributable cash flow. Paying a quarter of the price in units raises the hurdle above an all cash deal, while the asset's gas and liquids volumes will feed Energy Transfer's own network.
The terms are in Energy Transfer's release. The price is $1.95 billion in cash plus about 33.3 million newly issued common units, with closing expected in the fourth quarter of 2026 subject to regulatory approval. Vaquero owns the Caymus Processing Complex, three trains with about 675 MMcf/d of capacity, and an approximately 300 mile pipeline network across Loving, Reeves, Ward and Winkler counties in the Delaware Basin. The business runs on long term, fee based firm contracts and acreage dedications covering about 100,000 acres, with an average remaining life of about 10 years. Yorktown Partners and Keeneland Capital backed its formation.
Energy Transfer's accretion claim lets us work backwards from the required cash flow. In its second quarter results, the company reported $2,587 million of adjusted distributable cash flow attributable to partners on 3,443.3 million common units, or $3.01 per unit annualised. The 33.3 million new units would claim about $100 million of that cash flow each year. The $1.95 billion cash portion also has a cost. At 6.6%, the average of the 6.550% and 6.700% coupons on the junior subordinated notes Energy Transfer issued in July, it costs about $129 million a year. The two costs total roughly $229 million. To keep distributable cash flow per unit from falling, Vaquero must add that amount after maintenance capital spending and cash taxes. The $2.625 billion price divided by $229 million is 11.5 times, assuming the accretion test uses Vaquero's own cash flow.
Interest on the US$1.95 billion cash portion costs about US$129 million a year and the 33.3 million new units claim about US$100 million of today's distributable cash flow, so Vaquero must add roughly US$229 million.
View data
| Item | US$ million a year |
|---|---|
| Interest on US$1.95bn cash at 6.6% | 128.7 |
| Share of current DCF claimed by 33.3m new units | 100.1 |
| DCF Vaquero must add to break even | 228.8 |
The unit portion raises the hurdle. The $675 million assigned to 33.3 million units values each at about $20.27. At 10:03 am New York time on Tuesday, Google Finance showed the units at $20.47, down 0.7% from a $20.62 close, so the sellers are receiving units near the screen price. Energy Transfer pays a $1.36 annual distribution on each unit, a yield of about 6.7% at the deal value. For the accretion test, however, the new units claim about $100 million of annual cash flow, a yield of roughly 15% on $675 million, compared with 6.6% on the debt. If the entire $2.625 billion were paid in cash at 6.6%, the hurdle would be about $173 million. The unit mix adds roughly $56 million to Vaquero's required earnings. The financing remains small against the balance sheet: the new units equal 0.97% of the 3,443 million outstanding, and the cash represents about 0.1 turn of the roughly $19 billion in 2026 EBITDA Energy Transfer expects. Long term debt is $68.4 billion, or about 3.6 times EBITDA. We see the cash flow hurdle, rather than funding capacity, as the constraint.
The accretion test may include benefits from Energy Transfer's downstream system. And if the company uses its revolver, 6.6% may overstate its marginal cost of cash. Either change would raise the ceiling, but only by the value of Energy Transfer's network, which is the strategic case for the deal. For a lender or buyer pricing another Delaware Basin gathering and processing asset this quarter, 11.5 times distributable cash flow is the most an acquirer with Energy Transfer's funding costs can justify without synergies. A seller asking for more should show that two additional processing trains are contracted. Most bidders lack a downstream network and would have lower ceilings, so a seller may still prefer Energy Transfer's cash.
The downstream network is where Energy Transfer can earn additional fees. The company says Vaquero's assets already connect to its natural gas and NGL infrastructure. Gas gathered and processed by Vaquero can move onto Energy Transfer pipelines, through its fractionation and terminalling facilities, and out through its export facilities. Energy Transfer, rather than Vaquero's seller, earns the fees along that route. Neither the company nor we have assigned a value to those benefits. The structure makes the processing plant the entry point to a longer chain of fees, beyond the price paid for Vaquero itself.
Energy Transfer's recent results suggest it can handle more volume. In the second quarter, adjusted EBITDA was $5.07 billion, up 31% from $3.87 billion a year earlier. The midstream segment earned $884 million, compared with $768 million, while gathered volumes rose 4% to a record. Energy Transfer raised its 2026 adjusted EBITDA guidance to $18.8 billion to $19.1 billion and plans $5.6 billion to $5.9 billion in growth capital spending. In June, it placed the 275 MMcf/d Mustang Draw I plant in the Midland Basin into service. Vaquero adds ready made capacity in the Delaware Basin beside a company already building plants of this size, and the accretion test constrains the price Energy Transfer can pay.
The cost per unit of capacity falls if Vaquero adds the extra trains. At $2.625 billion for 675 MMcf/d, Energy Transfer is paying about $3.9 million per MMcf/d, including 300 miles of pipe. If the acreage supports the two additional trains the company says it could build, raising capacity to about 1.2 Bcf/d, the same price works out to about $2.2 million per MMcf/d. The release gives no separate value for that option. The purchase includes acreage for both trains, the dedicated acreage is covered by contracts averaging 10 years, and added volume would flow through Energy Transfer's existing downstream network.
Energy Transfer has the incentive, acreage and balance sheet to build more capacity. We expect it to announce a fourth processing train at Caymus by 30 June 2027, taking capacity above 675 MMcf/d. It already has acreage for two more trains. The dedicated acreage and average remaining contract life of 10 years give it time to fill them, while record midstream gathered volumes point to demand. This year's $5.6 billion to $5.9 billion growth capital budget shows that the company is investing at a pace that can accommodate another plant.