Enterprise Products Partners LP, one of the largest pipeline companies in the U.S., will buy Texas oil and gas pipelines and processing plants from Pioneer Natural Resources Co. and Reliance Industries Ltd. for $2.15 billion.
Pioneer is one of the most active drillers in U.S. shale formations, but last year’s oil price plunge forced the company to tighten its belt. In November, Pioneer announced it was looking for someone to buy its Eagle Ford Shale pipeline unit, a joint venture between Pioneer and Indian conglomerate Reliance. The assets move and process crude-oil and natural gas in South Texas.
Many energy watchers have predicted the industry downturn would push companies to the brink, forcing them to sell assets at bargain prices in order to stay on good terms with lenders. Pipeline networks and other logistics infrastructure were widely expected to be first on the block.
But investors and lenders have been more willing to keep funding the energy industry than many expected, and as a result, fewer of those deals have been done than many companies that own and operate pipelines, storage terminals and oil refineries were hoping for.
The benchmark price for U.S. oil is trading around $60 a barrel, or 40% lower than a year ago, but Pioneer Chief Executive Scott Sheffield said he’s growing more confident that the crude price has hit its bottom. Pioneer is one of a growing number of companies thatplans to put drilling rigs back to work. The influx of cash from the deal announced Monday will help it do that.
The same improves Pioneer’s balance sheet and will “allow us to strategically redeploy capital to our core, oil-rich Spraberry-Wolfcamp asset in the Permian Basin of West Texas,” Mr. Sheffield said.
By early 2016, Pioneer expects to add back 20 drilling rigs to its U.S. operations.
The deal gives Enterprise 460 miles of natural gas pipelines, 10 gas plants and 780 million cubic feet a day of gas treatment capacity.
It also gives Enterprise 119,000 barrels a day of ultralight oil stabilization capacity, the company said. Enterprise and Pioneer became the first U.S. energy companies to gain federal permission to export ultralight oil, known as condensate, from the U.S. despite a long-standing ban on selling American oil overseas.
Pioneer and Reliance will each get roughly $1 billion from the sale. The companies have committed to using the pipeline system under a 20-year, fixed-fee agreement that includes a minimum volume requirement for the first seven years.
Pioneer said the deal will allow it to export more ultralight oil from Texas by way of Enterprise’s facilities. The company has shipped abroad about 600,000 barrels a month since last summer.
The deal is expected to be completed in the third quarter, pending regulatory approvals and closing conditions.
Source: Wall Street Journal