Southwestern Energy Sells Pennsylvania Pipelines for $500 Million
HOUSTON ( The Deal) -- Houston oil and gas explorer Southwestern Energy (SWN) - Get Report said Thursday it agreed to sell its gathering assets in Bradford and Lycoming counties in northeastern Pennsylvania to private equity-backed Howard Midstream Partners for $500 million.
Howard Midstream, which does business as Howard Energy Partners, is 59% owned by Alinda Capital Partners and 31% owned by EnLink Midstream, whose affiliates include EnLink Midstream Partners (ENLK) and EnLink Midstream (ENLC) - Get Report. The rest is held by management and private investors.
The deal includes 100 miles of natural-gas gathering pipeline with nearly 600 million cubic feet per day of capacity.
Howard said in a separate statement that it plans to design, construct and operate a new natural gas gathering system for Southwestern in Tioga County, Pa., which will add up to 380 million cubic feet per day of capacity in the area.
"This is a significant transaction for us as these established assets place Howard Energy Partners in the heart of the prolific Marcellus Shale," Brad Bynum, Howard's president and co-founder, said in a statement. "This acquisition is a testament to our long-term growth strategy to broaden our footprint and build a diversified portfolio of large-scale assets and revenue streams. We are excited about the development potential in the Marcellus and are honored to enter into this arrangement with Southwestern Energy, one of the largest producers in the area."
Southwestern expects to close the deal in the second quarter and use the proceeds to substantially repay borrowings under its $500 million term loan facility, which matures in December 2016.
Southwestern Chairman and CEO Steve Mueller said in a statement that the deal represents a major step toward completing its previously announced acquisition financing plan. "With this deal, we are well on our way to achieving the $600 million to $800 million in divestiture proceeds announced as part of that plan," he said.
Simmons & Co. International analyst David Kistler wrote in a report that the deal came sooner than Wall Street's expectations and alleviates some investor concerns regarding a $700 million cash-flow gap this year and an expanding balance sheet after acquisitions. Kistler said Southwestern also intends to sell assets in the Ark-La-Tex basin, which should help it achieve its divestiture goals.
Last fall, Southwestern picked up properties in the Marcellus and Utica shales from Chesapeake Energy (CHK) - Get Report for $5 billion, a 20% stake in properties in West Virginia and southwest Pennsylvania from Norway's Statoil (STOHF) for $395 million and WPX Energy's (WPZ) transportation assets in northeast Pennsylvania for $300 million in cash. In January, it raised $2.2 billion in acquisition financing.
While Southwestern's release was short on details, Kistler said he suspects there will be some type of contractual obligation for minimum volume on the gathering system and will look to the company for additional clarity.
Southwestern wasn't thought to be considering spinning off its midstream assets, as many oil and gas explorers and producers are doing to raise cash given lower oil prices, but it was known to be shopping its Arkoma properties with bids expected to be in by March 11.
Locke Lord LLP's Terry Radney, Mitch Tiras, Buddy Sanders, Ben Cowan, Van Jolas, Ed Razim, Hunter Summerford, Julia Pabon and Laura Ferguson provided outside counsel to Southwestern, whose inside counsel was led by Billy Dixon. Bracewell & Giuliani LLP represented Howard, including G. Alan Rafte, Ryan Holcomb, Daniel Hemli, Elizabeth McGinley, Bruce Jocz, Heather Palmer., Jacqueline Java, Vivian Ouyang, Christopher Miller and Will Thanheiser. Greg Parker is Howard's general counsel, while John Ale is Southwestern's general counsel.
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