Flame on: King & Spalding, Vinson & Elkins advise on Kodiak’s Acquisition of CSI Compressco

With U.S. natural gas production at record highs, Kodiak Gas Services, Inc. announced its $854 million acquisition of CSI Compressco LP. The all-equity deal arrives just 3 years after CSI Compressco’s general partner was acquired by Spartan Energy Partners LP.

“Kodiak focuses on providing contract compression services to oil and gas producers and midstream customers in high volume gas gathering systems, processing facilities, multi-well gas lift applications and natural gas transmission systems,” according to the companies’ joint press release, while “CSI Compressco is a provider of compression services and equipment for natural gas and oil production, gathering, artificial lift, transmission, processing, and storage.”

Natural gas has been used for thousands of years. In fact, the Oracle at Delphi in ancient Greece was constructed where gas seeped naturally from the ground and provided an unending flame that seemingly burned without fuel. It is believed that priestesses would “divine the future” by inhaling the fumes, among them ethylene, which can cause narcotic effect of “disembodied euphoria.” It was not until three thousand years later that the gas was harnessed for widespread commercial use.

Source: https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/natural-gas/011023-record-us-production-growth-to-keep-lid-on-2023-2024-gas-prices-eia

While natural gas itself is a greenhouse gas, when it is burned for fuel, it releases significantly less carbon dioxide and other pollutants than other sources such as coal. In fact, a 2021 study concluded that if the top 5% most polluting oil and coal power plants in world were converted to natural gas, it would reduce worldwide carbon emissions by 30%.

U.S. carbon emissions have declined an average of 1% per year between 2012 and 2021 – before holding steady in 2022 and then declining by a projected 3% in 2023 – largely due to power plants switching to natural gas. This progress falls short of the Paris Accords, however, and Drew Shindell, a professor of earth science at Duke University, warns, “We’re not shifting to zero carbon, we’re shifting to half as much carbon. It is not a sustainable thing to shift from coal to gas.” 

Source: https://www.eia.gov/naturalgas/weekly/

The U.S. has enjoyed record natural gas production in recent years, making it the largest natural gas exporter in the world and igniting major geopolitical ramifications. Upon Russia’s invasion of Ukraine in 2022 caused a spike in prices because Russia supplied much of Europe’s natural gas. In fact, Russia’s leaders counted on the nation’s dominance over energy supply to provide leverage in preventing Europe from supporting Ukraine.

The strategy backfired. “Instead, a flow of American energy has given the United States a growing role in the continent’s economy, while pushing Russia to the side. U.S. companies provided 50 percent of Europe’s liquefied natural gas supplies in 2022.” Kodiak and CSI Compressco hope to capitalize on the world’s growing demand for U.S. natural gas.

According to DealPulse’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly announced transactions, Kodiak is advised by King & Spalding LLP and CSI Compressco is advised by Vinson & Elkins LLP.