Whiting Petroleum announces $375 million sale of Bakken midstream assets
Whiting Petroleum Corp. (ticker: WLL) announced that it has entered into an agreement to sell its 50% stake in two Bakken natural gas processing facilities.
The sale of the facilities, one of which is in Mountrail County, North Dakota, and the gas processing plant and associated natural gas, crude oil and water gathering systems located in Stark, Billings and Dunn Counties, North Dakota, will net the company $375 million. The company is expected to use the proceeds from the deal to pay off approximately $275 million in debt that is coming due in 2018, and the remaining $100 million to increase the tempo of drilling next year.
The company sold the assets, which from April through September 2016 had average daily throughput of 132 MMcf/d, to an affiliate of Tesoro Logistics Rockies, LLC, according to the company’s press release. A report from KLR Group Tuesday estimated that the facilities generate roughly $40 million in EBITDA net to Whiting, equating to a ~9.4x deal multiple. The multiple came in at the high-end of KLR’s expectations, but about 22% below the average of gas gathering and processing deals, according to a note from Stifel.
“We expect this sale to further strengthen our balance sheet and provide us with additional financial flexibility to invest for growth in Whiting’s top tier producing assets in the Williston and DJ Basins,” Whiting Chairman, President and CEO James Volker said. “This sale aligns with our ongoing strategy to divest non-core midstream assets and focus capital in the company’s highly productive upstream business.”
Analysts have largely viewed the news as positive, saying the sale will help the company improve liquidity on its $650 million credit facility. In addition to paying off the company’s 6.5% notes coming due in October, 2018, the company could also see a potential lift to liquidity if its stock averages above $8.75 for 20 of any 30 consecutive days, which would trigger a debt for equity exchange. The exchange would lower net debt to EBITDAX from approximately 3.6x to below 3.0x, according to Stephens.
Whiting is expected to use the remainder of the income generated from the midstream sale to increase drilling in 2017. An additional $100 million should nearly fund another rig in the Bakken and add 4 to 5 MBOEPD to the company’s production, Stifel said in its report.
Analyst Commentary
Stephens
WLL announced an agreement to sell its 50% interest in its Robinson Lake natural gas processing plant in Mountrail County, ND and its 50% interest in its Belfield natural gas processing plant in Stark, Billings and Dunn counties, ND for a total of ~$375 million in proceeds. The transaction is expected to close in 1Q17 and further helps de-lever the balance sheet, as we now model Net Debt/EBITDAX <3x at YE17 (assuming conversion of mandatory convertible notes in 2017). We recently upgraded WLL from EW to OW following meaningful improvements to the Company's well economics and balance sheet, and these midstream asset sales provide additional financial flexibility to invest in its upstream Williston and DJ Basin assets. We remain OW and are increasing our price target from $16 to $18.
Stifel
After market close, WLL announced that it has agreed to sell its 50% interest in the
Robinson Lake and Belfield natural gas processing plants and gathering systems
in North Dakota to Tesoro Logistics for $375MM. The sale values the assets at
~9.4x EBITDA, 22% below the average of our colleague Selman Akyol's gas
gathering and processing peer group.
Wunderlich
Whiting Petroleum (WLL) last night announced it has entered into agreements
to sell its 50% interests in two Bakken gas-processing plants and associated
infrastructure for net proceeds to WLL of $375 million. The deal is expected to
close in 1Q17 and has been a focus of investors for WLL given its plans to unlock
value and additional cash that can be used to reduce its debt. While we expect a
good portion of the funds to be focused on bank debt reduction, we do believe
WLL could also utilize some of the proceeds to ramp up its drilling program in
2017 if prices accommodate an activity increase. While we like the move, we
remain Hold rated on WLL at this time with a $9 price target.
KLR Group
WLL ($10.23, B, $17) – North Dakota Midstream Divestiture (Positive Optic, Minor Positive Value Impact) –
WLL announced it has signed an agreement to sell its 50% interest in Robinson Lake (Mountrail County) & Belfield (Starks,
Billings and Dunn Counties) midstream plants for ~$375 million net to WLL to Tesoro Logistics Rockies, LLC (TSO, $84.70,
NR). From April through September ’16, the plants had an average daily throughput of ~132 MMcfpd. We estimate the plants
generate ~$40 million in EBITDA net to Whiting, equating to a ~9.4x multiple (at the high end of our 8x-10x expectation). We
anticipate the company uses ~$275 million of the proceeds to pay down debt and the remaining ~$100 million to accelerate
’17 drilling tempo. Preliminarily assuming an incremental ~$100 mm of capex in ’17 our 4Q/17 production forecast would
increase by ~3%. Pro forma the divestiture, WLL ’17 net-debt-to-EBITDA should decline to ~2.6x from ~2.9x previously. This
announcement should have a minor positive value impact due to the increase in drilling tempo.
SunTrust Robinson Humphrey
Whiting announced an agreement to sell its 50% interest in North Dakota
Midstream assets for $375mm to Tesoro Logistics Rockies; the deal is expected
to close in 1Q17. We forecast the company to use ~75% of the proceeds to
reduce debt with the remainder going to boost activity.
The flow through of the sale causes our price target to increase by $1 primarily
as we decrease our 2017 debt estimate by ~$275 million and increase our
2017 production estimate by ~2% (We estimate interest expense should also
fall by at least $15 million annually, though it has no impact on our EBITDAbased
price target. The associated EBITDA from the midstream assets also
disappears).
