Enterprise Products Partners L.P. will purchase Pioneer Natural Resources and Reliance Industries' Eagle Ford Midstream shale gas asset for $2.15 billion.
"The purchase price will be paid in two installments with the first installment of $1.15 billion paid at closing and the final installment of $1 billion paid no later than the first anniversary of the closing date," said Enterprise Products Partners L.P, in a press statement.
Pioneer owns 50.1% in the asset while Reliance owns the remaining 49.9%.
Bankers said the valuation of the asset has come in lower than its initial expectation of $4.5 billion.
The drop in valuation is largely due to the fall in prices of crude oil since the sale process began last year, as well as concern about damage to the environment due to fracking in the US.
"Pioneer and Reliance will also benefit from fee reductions under existing downstream processing and transportation contracts with Enterprise in exchange for extending the contract term to 20 years and dedicating additional Eagle Ford Shale volumes to Enterprise. The reduced fees are expected to benefit Pioneer and Reliance over the original terms of the downstream contracts by approximately $200 million on a net present value basis at 10%," said Pioneer in a press statement.
“We are pleased to announce the acquisition of EFS Midstream,” said Michael A Creel, chief executive officer of Enterprise’s general partner.
“This purchase and the associated long-term, fee-based agreements expand our relationship with Pioneer and Reliance and broaden the midstream services that we provide to them. This ‘bolt on’ acquisition extends our integrated system deeper into the NGL and condensate rich areas of the Eagle Ford, which will provide us with the ability to offer services to additional producers and increase volumes on our system.”
EFS Midstream provides gas gathering, treating, compression and condensate processing services in the Eagle Ford Shale.
"Upon closing of the transaction, Pioneer will no longer receive its share of the cash flow generated by the EFS Midstream business, which was forecasted to be more than $100 million in 2015. The loss of this cash flow will result in an increase to Pioneer’s Eagle Ford Shale production costs of approximately $3.00 per barrel oil equivalent (BOE) and total corporate production costs of approximately $0.75 per barrels of oil equivalent," added Pioneer.
The EFS Midstream system includes approximately 460 miles of natural gas gathering pipelines, 10 central gathering plants, 780 million cubic feet per day of natural gas treating capacity and 119 thousand barrels per day of condensate stabilization capacity.
Under the terms of the agreements, the Pioneer and Reliance joint development will dedicate its Eagle Ford Shale acreage to Enterprise under a 20-year, fixed-fee gathering agreement that includes a minimum volume requirement for the first seven years.
Pioneer and Reliance will also dedicate their Eagle Ford Shale acreage under 20-year fee-based agreements with Enterprise for natural gas processing, natural gas liquids transportation and fractionation, and for natural gas, processed condensate and crude oil transportation services.
“The minimum volume commitments support annual revenue growth and cash flow assurance. We expect the transaction to be immediately accretive to distributable cash flow. Attracting volumes from additional producers and incremental cash flows earned by our downstream system, would further improve our distributable cash flow accretion,” stated Creel.
Completion of this transaction is subject to customary regulatory approvals and closing conditions. The transaction is expected to close in the third quarter of 2015.
Enterprise Products Partners L.P. is a leading North American provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products and petrochemicals.
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