Enterprise Products Partners L.P. announced yesterday that it has agreed to purchase all of the member interests in EFS Midstream LLC from affiliates of Pioneer Natural Resources Company and Reliance Industries Limited for $2.15 billion.
EFS Midstream provides gas gathering, treating, compression and condensate processing services in the Eagle Ford Shale. 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. Pioneer owned 50.1 per cent of EFS Midstream and Reliance owned the remaining 49.9 per cent.
The purchase price will be paid in two instalments with the first instalment of $1.15 billion paid at closing and the final instalment of $1.0 billion paid no later than the first anniversary of the closing date.
“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,” continued Creel.
“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.
The agreement also stipulates that Pioneer and Reliance will 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 per cent. These reduced fees will primarily be reflected as improvements in future realized prices. Enterprise has also agreed to spend $270 million over the next ten years on new facilities, connections and expansions to support the continuing development of the Eagle Ford Shale resource.
After retiring the debt of EFS Midstream of approximately $150 million, Pioneer’s share of the net sale proceeds, before normal closing adjustments, is expected to be $500 million at closing and $500 million one year later.
The sale of EFS Midstream is expected to result in a pretax gain in excess of $725 million to Pioneer, which is expected to be recognized in the third quarter of 2015. Pioneer expects net cash proceeds from the sale to total approximately $900 million after tax.
In addition, the Company will realize its $100 million share of the reduced transportation and processing fees associated with the new downstream agreements. The sale of EFS Midstream is also expected to enhance Pioneer’s ability to export processed Eagle Ford Shale condensate.
Scott D. Sheffield, Chairman and CEO of Pioneer, stated, “The sale of EFS Midstream will further improve our already strong balance sheet and allow us to strategically redeploy capital to our core, oil-rich Spraberry/Wolfcamp asset in the Permian Basin of West Texas, which we have successfully transformed from a vertical play into a world-class horizontal play.”
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 BOE.
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.
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