Harold Hamm – the man credited with pioneering the shale revolution in the U.S. – has announced he is selling Hiland Partners, a pipeline and logistics company founded by Continental Resources Inc, to pipeline operator Kinder Morgan for $3 billion, including debt.
Hamm, who has seen his fortune shrink almost by half in October after Continental Resources, in which he holds a 68 per cent stake, was hit by the plummeting oil prices, is currently embroidered in a $1 billion divorce with ex-wife Sue Ann Arnall.
Hiland’s assets, which are mostly fee based, consist of approximately 1,225 miles of crude oil gathering and transportation pipelines and gas gathering and processing systems, primarily serving production from the Bakken Formation in North Dakota and Montana.
These include the Double H Pipeline – a 485-mile pipeline which, when completed at the end of this month, will transport crude oil from Hiland’s Dore Terminal in North Dakota to Guernsey, Wyoming. There it will interconnect with Tallgrass Energy Partners’ Pony Express Pipeline for further transportation to the U.S. crude futures hub in Cushing, Oklahoma.
The pipeline will have an initial capacity of approximately 84,000 barrels per day, raising to 108,000 barrels per day in 2016, and has take-or-pay contracts in place for approximately 60,000 barrels per day.
According to the Kinder Morgan press release, the transaction creates a premier midstream platform for the company in the Bakken. It comprises nearly 3.7 million acres dedicated under long-term gathering agreements with some of the play’s largest and most successful producers, including: Continental Resources, Inc., Oasis Petroleum Inc., XTO Energy Inc., Whiting Petroleum Corporation and Hess Corporation.
“They’re trying to take advantage of what they view as a down market in the Bakken,” Bradley Olsen , a Houston-based analyst for Tudor Pickering & Holt, told Bloomberg in a phone interview. “It doesn’t look especially cheap on the up-front numbers. There’s going to be a lot of questions about whether he’s been conservative enough with his forecast for the Bakken.”
The company’s Chairman and CEO Richard D. Kinder told analysts and investors on a conference call his team was “pretty conservative” in assessing the deal, considering the area’s low prices. The location of Hiland’s assets are in one of the lowest-cost basins in North America for producers to continue drilling and shipping oil, Kinder said.
“We think and believe that we’re right in the tier one, sweet spot of the Bakken,” Kinder said. “Otherwise we wouldn’t have done the deal.”
“Kinder Morgan’s projections for Hiland are reflective of the current commodity price environment. While Hiland’s gathering systems serve some of the Bakken’s and North America’s most economic acreage, the projections incorporate announced reductions in drilling activity by Hiland’s customers,” he explained.
“Although Hiland’s cash flow is largely fee-based, our projections are based on commodity prices consistent with the current forward curve for the portion that is sensitive to commodity prices.”
Kinder Morgan anticipates retaining nearly all of Hiland’s approximately 430 employees and maintaining KMI’s already significant presence in Oklahoma.
The transaction is expected to close in the first quarter of 2015.
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