[Context: On June 13, Howard Energy Partners, backed by Alinda Capital and AIMCo, announced signing a 50/50 joint venture with WPX Energy (NYSE: WPX) to develop oil and gas gathering and processing infrastructure in the Delaware Basin. To fund the transaction, Howard Energy Partners secured $563m from its existing investors an GIC Private Limited, Singapore’s sovereign wealth fund. A mash-up of both WPX Energy’s and Howard Energy’s press releases are below, along with advisors and related links.]
SAN ANTONIO and TULSA–June 13, 2017–WPX Energy (NYSE:WPX) has signed a strategic partnership with Howard Energy Partners to jointly develop oil gathering and natural gas processing infrastructure in the Stateline area of the Permian’s Delaware Basin.
The joint venture with Howard is designed to support WPX’s drilling operations in the Stateline area, representing 50,000 net acres, or 37 percent of WPX’s roughly 135,000 net acre position in the Delaware.
The joint venture includes crude oil gathering assets already under construction and a planned natural gas processing complex. It does not include WPX’s natural gas and water gathering systems in the Stateline area, along with midstream rights to its remaining acreage position in the Delaware.
In a separate transaction, WPX secured additional takeaway capacity for its Delaware Basin natural gas volumes and an equity position in the related pipeline. Further details are provided in this release.
Joint Venture Highlights
>> 50/50 joint venture between WPX and Howard Energy Partners
>> Howard Energy Partners will finish constructing the JV assets and serve as operator
>> Dedication of 50,000 acres represents 37% of WPX’s total acreage in the Delaware
>> Transaction implies a value of $863 million for Stateline oil gathering and gas processing projects
>> WPX receiving $300 million upfront from Howard Energy Partners
>> Howard Energy Partners to fund the first $263 million of JV capital expenditures, including a $132 million carry for WPX
>> No minimum volume or drilling commitments
The joint venture will complete the buildout of a new crude oil gathering system, already started by WPX in the basin, and begin constructing a new cryogenic natural gas processing complex with a planned initial capacity of 400 MMcf/d. The parties plan to seek out third-party volumes in an area of mutual interest in the Delaware Basin.
WPX has a 50 percent voting interest in the joint venture and operational influence. The transaction value of $863 million for the new joint venture is based on the cash to WPX, the capital carry and WPX’s ownership interest.
As previously stated, WPX is retaining sole ownership of its Stateline natural gas and water gathering systems which consist of more than 375 miles of scalable existing infrastructure.
WPX believes the retained assets are worth considerably more than the $500 million of implied value at the time of its acquisition of RKI Exploration & Production nearly two years ago.
Howard Energy enters the Delaware Basin
Howard Midstream Energy Partners, LLC (HEP) announced today it has signed a strategic partnership with WPX Energy (NYSE:WPX) to develop crude oil and natural gas gathering and processing infrastructure in the core of the Delaware Basin. HEP will complete construction of an approximately 50-mile crude oil gathering system (initial construction already started by WPX), build a new cryogenic natural gas processing complex with an initial capacity of 400 million cubic feet per day, and build associated natural gas and product pipelines.
HEP will serve as operator of the assets. The 50/50 joint venture is supported by an area of mutual interest of more than 600 square miles in Lea and Eddy Counties, New Mexico, and Reeves and Loving Counties, Texas, with 50,000 net acres currently dedicated by WPX.
To fund the joint venture, HEP partnered with GIC Private Limited, Singapore’s sovereign wealth fund, as well as its existing unit holders Alinda Capital Partners and Alberta Investment Management Company (AIMCo), on behalf of certain of its clients. The partnership is committed to spend initially $563 million of new capital on the joint venture.
“Historically, producer-backed midstream companies have performed well given the strong alignment of interests. We are excited about the strategic partnership with WPX, one of the strongest players in the Permian Basin, and the positive implications it has for our business,” said Mike Howard, Howard Energy Partners’ chairman and chief executive officer.
“This joint venture not only diversifies HEP’s footprint into the most prolific basin in the nation, but it demonstrates our team’s ability to differentiate ourselves among our competitors and to raise significant capital for large-scale infrastructure projects. We are confident that our midstream operational expertise, coupled with strong financial support and WPX’s production track record, will make for a successful partnership in the Delaware.”
HEP was advised by Simmons & Company International, Energy Specialists of Piper Jaffray and legal counsel Latham & Watkins LLP.
AIMCo was advised by legal counsel Kirkland & Ellis LLP.
Alinda was advised by legal counsel Simpson Thacher & Bartlett LLP.
GIC was advised by legal counsel Sidley Austin LLP.
Barclays acted as financial advisor to WPX on the joint venture transaction. Holland and Hart served as the legal advisor. Investors are encouraged to access a slide presentation about the joint venture at www.wpxenergy.com.
WPX Explains Its Strategy
“Our approach to supporting our growth plans in the Delaware Basin uniquely differentiates WPX,” said Rick Muncrief, WPX’s chairman, president and chief executive officer.
“As a producer, this is a bold and innovative way to lay a well-defined path for our expected volumes and create an additional platform for generating shareholder value. Today’s agreement breaks new ground on both fronts.
“For starters, our forward-looking action gives our long-term Delaware development a competitive advantage. Second, we’re looking at the bigger picture and how to extend value creation beyond the drill bit by creating a premier Delaware midstream service provider.
“We believe the Howard team has the right skills, capabilities and focus to make this joint venture a success and we’re excited to work with them,” Muncrief said.
This transaction builds on WPX’s successful track record for creating value from the infrastructure it develops around its operations. The company previously sold gathering systems in the Williston and San Juan basins.
The parties expect to close the transaction in the third quarter subject to certain closing conditions. Prior to closing, WPX and Howard will begin integrating efforts to continue to build out the crude oil gathering system and begin work on the cryogenic processing plant.
WPX already has installed approximately half of the planned 50-mile crude gathering system that initiated service in late 2016. WPX currently has 40 wells tied in, some of which are awaiting completion before starting deliveries into the system.
The trunkline is designed to have a capacity of approximately 125,000 barrels of oil per day. The parties expect to complete the project in the first half of 2018 and believe it can be expanded for other commercial opportunities with minimal capital investment through additional horsepower and line looping.
The parties expect to complete the first 200 MMcf/d train for the cryogenic natural gas processing complex in the first half of 2018. The parties plan to add a second train to double the capacity by the middle of 2019.
More Delaware Takeaway Capacity
WPX is active in securing long-term takeaway capacity in the basin for its associated gas production. As previously announced, WPX recently signed an agreement to ship up to 200,000 MMBtu/d of gas from the Waha hub to Katy, Texas, starting in November of this year.
WPX also just completed a long-term agreement with WhiteWater Midstream, which provides WPX with 300,000 MMBtu/d of natural gas capacity from the Stateline area to Waha and 10 percent ownership in the related Agua Blanca Pipeline. As part of the agreement with WhiteWater, WPX has the right to increase its capacity to 500,000 MMBtu/d and its ownership up to 20 percent.
Agua Blanca will initially consist of 75 miles of 36-inch diameter pipe with a capacity of 1.25 Bcf/d, expandable to 1.75 Bcf/d. WhiteWater expects to accept first volumes from the Stateline area in the first half of 2018.
WPX Energy: Barclays and Holland and Hart
Howard Energy: Simmons & Company and Latham & Watkins
AIMCo: Kirkland & Ellis
Alinda: Simpson Thacher & Bartlett
GIC: Sidley Austin
WPX has posted double-digit oil volume growth each of the past five years. The company is active in the Delaware, Williston and San Juan basins. The Delaware Basin is the western portion of the greater Permian Basin. More information is available at www.wpxenergy.com.
About Howard Energy Partners
San Antonio-based Howard Midstream Energy Partners, LLC dba Howard Energy Partners is an independent midstream energy company, owning and operating natural gas gathering and transportation pipelines, natural gas liquids processing plants, rail facilities, liquid storage terminals, deep-water port facilities and other related midstream assets in Texas and Pennsylvania. The company has corporate offices in San Antonio, Houston and Mexico City. For more information on Howard Energy Partners, please visit our website www.howardenergypartners.com.
AIMCo is one of Canada’s largest and most diversified institutional investment managers with more than $100 billion of assets under management. Established on January 1, 2008, AIMCo’s mandate is to provide superior long-term investment results for its clients. AIMCo operates at arms-length from the Government of Alberta and invests globally on behalf of 32 pension, endowment and government funds in the Province of Alberta.
For more information, please visit www.aimco.alberta.ca.
Alinda Capital Partners is one of the world’s largest and most experienced infrastructure investment firms. Alinda is a long-term investor in infrastructure assets that provide essential services to communities. Alinda has $10 billion of assets under management and has invested in infrastructure businesses that operate in 33 states in the United States as well as in Canada, the United Kingdom, the Netherlands, Belgium and Poland. These businesses serve over 100 million customers annually in more than 550 cities globally, and are run by a workforce of over 80,000 people. For more information, please visit www.alinda.com.
GIC is a leading global investment firm with well over US$100 billion in assets under management. Established in 1981 to secure the financial future of Singapore, the firm manages Singapore’s foreign reserves. With its disciplined long-term value approach, GIC is uniquely positioned to invest in both the public and private markets, including equities, fixed income, real estate, private equity and infrastructure. In infrastructure, GIC’s primary strategy is to invest directly in operating infrastructure assets with a high degree of cash flow visibility and which provide a hedge against inflation. These include mature, low to moderate-risk assets in developed markets, complemented by investments with higher growth potential in emerging markets. GIC employs over 1,300 people across offices in Singapore, Beijing, London, Mumbai, New York, San Francisco, Sao Paulo, Seoul, Shanghai, and Tokyo. For more information, please visit www.gic.com.sg.