Pioneer, Reliance Close Sale Of Eagle Ford Shale Midstream Business For $2.1 Bln

(RTTNews) - Oil and gas company Pioneer Natural Resources Co (PXD) on Wednesday said that the company and Reliance Holding USA Inc closed the sale of their Eagle Ford Shale Midstream business ("EFS Midstream") to an affiliate of Enterprise Products Partners L.P. (EPD) for $2.15 billion, subject to normal closing adjustments. Pioneer owned 50.1% of EFS Midstream and Reliance owned the remaining 49.9%.

Pioneer said the company and Reliance will also benefit from fee reductions under existing downstream processing and transportation contracts with Enterprise in exchange for extending the contracts' terms 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 about $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 was paid at closing, before normal closing adjustments, and about $1 billion will be paid twelve months after closing.

After retiring the debt of EFS Midstream of about $125 million, Pioneer's share of the net sale proceeds is $530 million at closing and about $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 will be recognized in the third quarter of 2015. Pioneer expects net cash proceeds from the sale to total about $930 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.

Upon closing this 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 about $0.75 per BOE.