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Pioneer to sell EFS Midstream business

Pioneer has entered into agreement to sell its Eagle Ford Shale Midstream business to Enterprise Products Partners
Pioneer to sell EFS Midstream business

Pioneer Natural Resources Co. has entered into a purchase and sale agreement with an affiliate of Enterprise Products Partners to sell their Eagle Ford Shale Midstream business (EFS Midstream) for US$2.15 billion. Pioneer owns 50.1% of EFS Midstream and Reliance owns the remaining 49.9%.

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%. 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.

The purchase price for the EFS Midstream business will be paid by Enterprise in two installments: $1.15 billion at closing, which is expected to occur early in the 3Q of 2015, and $1 billion 12 months after closing. 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 3Q of 2015. Pioneer expects net cash proceeds from the sale to total approximately $900 million after tax. In addition, Pioneer 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.

“Starting in July, we will add an average of two horizontal rigs per month in the northern Spraberry/Wolfcamp through the remainder of the 2015 as long as the oil price outlook remains positive,” said Scott D. Sheffield, chairman and CEO of Pioneer Natural Resources Co. “This additional drilling activity is expected to increase [Pioneer’s] 2015 capital budget by approximately $350 million. The addition of these 12 rigs will have minimal impact on forecasted 2015 production growth of 10%+ due to multi-well pad drilling.

“During [1Q] 2016, we are planning to add another eight horizontal rigs, of which six rigs will be in the northern Spraberry/Wolfcamp and two rigs will be in the Eagle Ford Shale. This rig ramp will bring our total horizontal rig count to 36 rigs (28 rigs in the Spraberry/Wolfcamp and eight rigs in the Eagle Ford Shale), which is essentially the same as our horizontal rig count prior to the oil price collapse in late 2014/early 2015. Based on this planned increase in drilling activity, we expect to deliver compound annual production growth of 15%+ over the 2016 through 2018 period.”

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/boe and total corporate production costs of approximately $0.75/boe.

 

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