Enterprise to buy Eagle Ford pipeline, processing group EFS Midstream

By JIM POLSON
Bloomberg

Enterprise Products agreed to buy a pipeline and processing company in Texas from Pioneer Natural Resources Co. and Reliance Industries for $2.15 billion, adding systems that feed exports of lightly processed oil.

Under the agreement, the sellers will continue to use the EFS Midstream system for 20 years, including a minimum volume requirement for the first seven years, Houston-based Enterprise said in a statement. EFS Midstream operates in the Eagle Ford, the most prolific oil field in the US and one of the few areas where producers are adding drilling rigs after prices collapsed.

The joint venture established in 2010 by Irving, Texas-based Pioneer and Reliance owns 460 miles (740 kilometers) of pipelines and plants that separate natural gas from crude condensate, enabling that light oil to be exported under US rules.

Oil producers are pushing for the US government to remove export limits, as a glut of production helped push prices to a six-year low. Pioneer exported 7,000 bbl of condensate daily from the Eagle Ford in the first quarter and wants to double that, chief operating officer Timothy Dove told investors on a May 6 quarterly earnings call. Pioneer and Enterprise won approval from the Commerce Department in 2014 to export the condensate, a light oil purchased in Europe and Asia as a substitute for naphtha.

Two Installments

Enterprise, which operates 51,000 miles of pipelines, will pay for the transaction in two installments -- $1.15 billion at closing and the remaining $1 billion 12 months later. The company said the transaction is expected to close in the third quarter.

Enterprise “has spent the past couple of years building out their presence on these sort of assets,” said Matthew Phillips, a Houston-based analyst for Clarksons Platou Securities. He rates Enterprise at buy and doesn’t own the stock.

Pioneer and Reliance will benefit from fee reductions after the sale, according to a separate release. Pioneer estimated its cash flow from the business at more than $100 million this year. Loss of those funds will increase its production costs by about $3/bbl in the Eagle Ford, the company said.

$270 Million Expansion

Oil and gas producers like Pioneer typically build pipelines and processing plants so they can sell their output as they drill fields. Many have sold these operations to pipeline owners. Enterprise agreed to spend $270 million expanding the system over the next decade, Reliance said Monday in a statement.

“EFS has succeeded in its objective of building the gathering and midstream structure in a timely manner to support ramp-up of the Reliance-Pioneer Eagle Ford Upstream Joint Development operations,” Walter Van de Vijver, CEO of Reliance Holding USA, said in the statement.

Mumbai-based Reliance was seeking to also sell its production assets in the region last year, people familiar with the matter said at the time. The statement didn’t address its strategic plan for US production.

Pioneer announced the intended sale of EFS in November. The company, which owns 50.1% of the venture, intends to spend the proceeds on wells in the Permian Basin of Texas and to bolster its balance sheet after crude prices dropped.

Energy Transfer Equity and Williams Cos. also bid on the unit, people with knowledge of the matter said in January.

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