Current LPI Stock Info

Private Global Infrastructure Partners will acquire major Midland pipe system

Laredo Petroleum (ticker: LPI) announced today the sale of its interest in the Medallion Midstream pipeline system.

Privately-held Global Infrastructure Partners will pay $1.825 billion in cash for total ownership in Medallion. These proceeds will be split between Laredo and The Energy & Minerals Group, a private investment firm.

Medallion is the largest privately-held crude oil transportation system in the Midland basin, with over 800 miles of pipe. Medallion Midstream reports that it has about 670,000 dedicated acres and total areas of mutual interest approaching four million acres. The system is designed to support substantial additional volume growth, and allows Permian oil to flow to several different end-markets.

 

Laredo will pay down more than 50% of debt

Laredo currently holds a 49% stake in the Medallion pipeline, while EMG holds the controlling 51%. After customary fees and expenses, Laredo expects to receive about $825 million from the sale. These proceeds will be used to pay down Laredo’s outstanding debt. The company reports that federal income tax on the sale will be minimal, as loss carry-forward will offset the gain.

Much of Laredo’s Permian acreage is served by the Medallion Pipeline, and about 84% of Laredo’s production is gathered on pipe. However, the company reports that its cost structure will see no impact from the transaction. All tariffs related to Medallion are already reflected in the company’s realized oil price and the system has no impact on LOE.

Laredo Chairman and CEO Randy Foutch discussed the sale, saying “In late 2013, we made our initial investment in MGP, creating a partnership to build a pipeline system to provide Laredo access to multiple sales points for its oil. This eventually grew into the premier pipeline system in the Midland Basin. Upon the closing of this Transaction, Laredo will recognize proceeds of more than three times its invested capital, equivalent to an internal rate of return of more than 65%, and, through our various ongoing contracts with Medallion, retain the strategic benefits that were the initial goal for building the system.”

“Since the inception of the Company, Laredo has viewed strategic investments in infrastructure as a long-term benefit to the Company and has been willing to borrow the funds to facilitate these investments, including the Medallion – Midland Basin pipeline system and our five production corridors,” Foutch continued. “The expected Transaction proceeds, which we intend to apply to debt repayment, should cut our outstanding debt balance by more than half. This will afford Laredo additional flexibility in our development plan as we test tighter spacing to add premium locations in the Upper and Middle Wolfcamp formations. We anticipate interest savings from the debt reduction to better align operating cash flow with capital expenditures. Based upon the current environment for commodity prices, service costs, forecasted rig cadence and production growth, we expect operating cash flow to increase sequentially, with the Company anticipating being approximately cash flow neutral by the end of 2019.”


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