Laredo Petroleum Announces Agreement to Sell Interest in Medallion Pipeline
October 02 2017 - 8:15AM
Laredo Petroleum, Inc. (NYSE:LPI) ("Laredo" or the "Company") today
announced that an agreement has been signed among an affiliate of
Global Infrastructure Partners ("GIP"), Laredo’s wholly owned
subsidiary Laredo Midstream Services, LLC ("LMS") and Medallion
Midstream Holdings, LLC which is owned and controlled by an
affiliate of The Energy & Minerals Group ("EMG"), whereby GIP
will purchase 100% of the ownership interests in Medallion
Gathering & Processing, LLC ("MGP") for a cash purchase price
of $1.825 billion plus potential additional cash consideration (the
"Additional Consideration"), subject to customary closing
adjustments (the "Transaction"). The potential Additional
Consideration is structured based on GIP’s realized profit at exit.
MGP is the sole owner of the Medallion – Midland Basin pipeline
system. If the Transaction closes, in exchange for its 49% interest
in MGP, LMS will receive 49% of the purchase price after deduction
of its proportionate share of fees and other expenses associated
with the Transaction. EMG, Laredo and LMS may have certain
post-closing indemnity obligations.
"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," commented Randy A. Foutch,
Chairman and Chief Executive Officer. "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."
Net cash proceeds to LMS from the Transaction at closing are
expected to be approximately $825 million. Laredo currently
anticipates using the proceeds primarily to pay down a portion of
the Company’s outstanding debt. Federal income tax on the
Transaction gain is expected to be minimal, as net operating loss
carry-forwards will offset the gain, but a small amount of
alternative minimum tax and Texas margin tax is expected. There
will be no impact to Laredo’s existing cost structure from the
Transaction. Currently, all tariffs related to agreements with
Medallion are reflected in the Company’s realized oil price and the
system has no impact on Laredo’s lease operating expenses.
"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," continued Mr. Foutch.
"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."
About Laredo
Laredo Petroleum, Inc. is an independent energy company with
headquarters in Tulsa, Oklahoma. Laredo’s business strategy is
focused on the acquisition, exploration and development of oil and
natural gas properties and the gathering of oil and liquids-rich
natural gas from such properties, primarily in the Permian Basin of
West Texas.
Additional information about Laredo may be found on its website
at www.laredopetro.com.
Forward-Looking Statements
This press release and any oral statements made regarding the
subject of this release contain forward-looking statements as
defined under Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical facts,
that address activities that Laredo assumes, plans, expects,
believes, intends, projects, estimates or anticipates (and other
similar expressions) will, should or may occur in the future,
including, but not limited to, the potential closing of the
Transaction and the application of net proceeds, are
forward-looking statements. The forward-looking statements are
based on management’s current belief, based on currently available
information, as to the outcome and timing of future events.
General risks relating to Laredo include, but are not limited
to, the decline in prices of oil, natural gas liquids and natural
gas and the related impact to financial statements as a result of
asset impairments and revisions to reserve estimates, and other
factors, including those and other risks described in its Annual
Report on Form 10-K for the year ended December 31, 2016, and those
set forth from time to time in other filings with the Securities
Exchange Commission (“SEC”). These documents are available through
Laredo’s website at www.laredopetro.com under the tab “Investor
Relations” or through the SEC’s Electronic Data Gathering and
Analysis Retrieval System at www.sec.gov. Any of these factors
could cause Laredo’s actual results and plans to differ materially
from those in the forward-looking statements. Therefore, Laredo can
give no assurance that its future results will be as estimated.
Laredo does not intend to, and disclaims any obligation to, update
or revise any forward-looking statement.
Internal rate of return is calculated using all cash investments
in MGP and an estimated Transaction closing date of November 1,
2017.
Contacts:Ron Hagood: (918) 858-5504 -
RHagood@laredopetro.com
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