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Reliance Industries Ltd (RIL) and Pioneer Natural Resources have entered into an agreement with North America-based Enterprise Products Partners to sell their stakes in Eagle Ford Shale (EFS) Midstream for $2.15 billion.
Pioneer owned 50.1 per cent in the venture, while RIL had the remaining 49.9 per cent. RIL has sold its stake for a consideration of about $1.07 billion. Pioneer had initiated the sale of EFS Midstream last November.
Under the agreement, RIL and Pioneer will use EFS Midstream’s pipeline infrastructure and system for 20 years, including a minimum volume requirement for the first seven years, the companies said in a statement.
EFS Midstream provides gas gathering, treating, compression and condensate processing services in the Eagle Ford shale formation, the most prolific oil field in the US.
“Under the terms of the definitive agreements, Enterprise will pay Reliance approximately $574 million in cash at closing and make the final payment of $499 million in cash on or before the first anniversary of the closing date,” RIL said in a statement. Pioneer will realise a similar amount.
In June 2010, RIL acquired a stake in the Pioneer asset for $1.31 billion and has so far invested $3.91 billion in exploration and setting up infrastructure. Analysts had pegged the valuation of the total asset, including the midstream business, at $4.5 billion. RIL holds a 45 per cent stake in the upstream business, which has not been sold.
The drop in valuation of the total asset is said to be because of the fall in prices of crude oil and concerns in the US regarding the damage to environment fracking would cause. Though crude oil has seen a 40 per cent rebound since March at $60 a barrel currently, it is still below last year’s levels of $100.
Completion of this deal is subject to regulatory approvals and closing conditions. The transaction is expected to close in the third quarter of 2015.
Pioneer said after retiring the debt of EFS Midstream of about $150 million, its share of the net sale proceeds, before normal closing adjustments, is expected to be $500 million at closing and $500 million a year later. The sale of EFS Midstream is expected to result in a pre-tax gain of about $725 million to Pioneer, expected to be recognised in the third quarter of 2015. Pioneer expects net cash proceeds from the sale to total about $900 million after tax.
“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 per barrel of oil equivalent and total corporate production costs of approximately $0.75 per barrel of oil equivalent,” Pioneer said in a statement.
RIL’s shale gas business in the US comprises three upstream joint ventures with Chevron, Pioneer Natural Resource, and Carrizo Oil and Gas; and a midstream joint venture with Pioneer. Aggregate investments since the inception of these ventures were $8.1 billion.
RIL partnered with Pioneer's EFS Midstream in 2010 to construct facilities to provide gathering and handling services for condensate and natural gas produced from wells in the Eagle Ford shale.
Under the terms of the agreements, the Pioneer and Reliance joint development will dedicate its Eagle Ford shale acreage to Enterprise under a 20-year, fixed-fee gathering agreement that includes a minimum volume requirement for the first seven years.
