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.
