Williston Basin giant Whiting Petroleum Corp. (NYSE: WLL) will sell its North Dakota midstream assets in a $700 million deal, with net proceeds surpassing most analysts’ expectations, the company said Nov. 21.
An affiliate of Tesoro Corp. (NYSE: TSO) agreed to purchase the assets, pending regulatory approval. Whiting’s net proceeds for its interests will total about $375 million.
Capital One Securities said Whiting’s share more than doubles the $180 million it estimated the company would receive. KeyBanc Capital Markets estimated a $250 million sales price, and Wells Fargo Securities, $300 million.
Whiting, based in Denver, said it would sell its 50% interest in the Robinson Lake natural gas processing plant and natural gas gathering system in Mountrail County, N.D. The company will also sell its natural gas processing plant and gas, crude and water gathering systems in Stark, Billings and Dunn counties, N.D.
From April through September, the plants average throughput was 132 million cubic feet per day (MMcf/d).
Whiting’s most significant headwind—leverage—will likely decrease more significantly than expected as a result, Capital One analysts said in a Nov. 22 report. As of October, the company has reduced its debt by $1.2 billion since March.
“The potential divestiture of the midstream has been discussed by management for over a year so the deal comes as no surprise,” Capital One analysts said in the report. “The sale price, however, did surprise to the upside. The extra cash in the door increases our NAV [net asset value estimate] by $1 to $13/share. In addition, proceeds de-lever the balance sheet, taking our [year-end 2017] debt to EBITDA estimate from 4.8x to 4.3x.”
Tesoro’s deal adds another piece to its Bakken infrastructure. On Jan. 11, Tesoro closed its acquisition of Great Northern Midstream LLC. Financial details of the transaction were not disclosed. Great Northern Midstream owned and operated a crude oil pipeline, gathering system, transportation, storage and rail loading facilities in the Williston Basin.
In that deal, Tesoro added the 97-mile BakkenLink crude oil pipeline, which connects to several third-party gathering systems; a proprietary 28-mile gathering system in the core of the Bakken, supported by acreage dedication; a 154,000 barrels per day (Mbbl/d) rail loading facility and a 657 Mbbl storage facility in Fryburg, N.D.
An affiliate of Tesoro Logistics Rockies LLC was named as the buyer of Whiting’s assets. The transaction is expected to close in first-quarter 2017.
Whiting will likely use the sale proceeds on growth capex in the Bakken, as well as on debt, Charles Robertson II, an analyst at Cowen and Co., said in a Nov. 21 report.
However, “we expect cash flow neutrality to remain a core focus. We anticipate that the deal will increase the company's [lease operating expense] LOE and processing costs marginally, but that fixed fee contracts and growing production may alleviate this effect in 2017.”
Whiting maintains a large stock of drilling inventory in the Bakken, with 92% located in its core areas.
In May, Whiting formed a joint venture (JV) with a private party to drill various Bakken wells. The private party will pay 65% of drilling and completion costs in exchange for a 50% working interest in 44 gross Williston Basin wells. Whiting received about $30.7 million in April for wells already in progress, the company said.
James J. Volker, Whiting's chairman, president and CEO, said the sale is expected to further strengthen the company’s balance sheet and provide additional financial flexibility to invest in Whiting’s Williston and Denver-Julesburg (D-J) basins.
“This sale aligns with our ongoing strategy to divest noncore midstream assets and focus capital in the company’s highly productive upstream business,” Volker said.
In July, the company closed on the sale of its North Ward Estes properties for $300 million in cash and a $100 million contingency payment.
WLL announced the sale of two gas processing plants (Robinson Lake and Belfield) in the Williston Basin for $375 million to Tesoro Logistics Rockies LLC.
Darren Barbee can be reached at email@example.com.