UPDATE 3-Whiting to sell oilfield stakes to BreitBurn for $859.8 mln

Mon Jun 24, 2013 2:35pm EDT

Related Topics

* BreitBurn says deal to help double liquids output in 4th qtr

* Whiting to invest in Permian basin, Rocky Mountains regions

* BreitBurn shares fall as much as 7 percent

By Swetha Gopinath

June 24 (Reuters) - Whiting Petroleum Corp will sell its stake in the Postle and North East Hardesty oil fields in Oklahoma, along with related pipeline and processing assets, to BreitBurn Energy Partners LP for $859.8 million, ending market skepticism about its ability to monetize the asset.

The producing oil and gas assets are located in the company's Texas County enhanced oil recovery projects, where carbon dioxide is injected into wells to force up liquids.

BreitBurn said it expected the purchase of properties to double its fourth-quarter liquids production from a year earlier. The company expects the deal to immediately add to distributable cash flow per unit.

"We're very excited to expand our geographic presence to nine states by entering into the Oklahoma panhandle with high quality oil fields and New Mexico with associated midstream assets," BreitBurn Chief Executive Halbert Washburn said on a conference call.

The company said the assets, which produced 7,400 barrels of oil equivalent in April, were estimated to have a reserve life of about 13 years and would help balance some development-focused acquisitions completed last year.

The company expects to fund the Whiting Petroleum deal with borrowings under an amended credit facility. BreitBurn said it had financing commitment to increase the borrowing base of its credit facility to $1.5 billion.

BreitBurn shares fell as much as 7 percent to a four-month low of $16.65 on the Nasdaq, before paring losses to trade down 2 percent.

"The reason for the stock selloff is worries that they may have to equity-finance a portion of the deal, because it's going to be quite a significant debt load," said Raymond James analyst Kevin Smith.

"They will be to able to debt-finance it for a while, but they will need to bring their leverage ratios down."

The company will continue to monitor capital markets for opportunities to reduce short-term debt and fund future growth, Chief Financial Officer James Jackson said on the call.

"We have plenty of time baked in but we will look to de-lever over time one way or another," he said.

ACCELERATING DRILLING

Whiting will use the sale proceeds to invest in its core properties in the Permian Basin in Texas and Rocky Mountain regions, and to repay debt.

"The deal provides greater flexibility for Whiting to accelerate operations while maintaining a strong balance sheet," said Howard Weil analyst Brian Corales, adding that the sale price was in line with his expectations.

Whiting had been looking to bring in a partner to develop the Postle oilfield, forming a royalty trust or selling it outright.

That fact the transaction was a sale rather than a trust is a positive, said SunTrust Robinson Humphrey analyst Ryan Oatman.

The sale includes gathering and processing facilities, oil delivery pipeline, a 60 percent interest in a 120-mile (193 kilometer) CO2 transportation pipeline, CO2 supply contracts and certain crude oil swaps, Whiting said on Monday.

BreitBurn said it was spending $30.2 million more to buy the remaining interest in the CO2 transportation pipeline from a third party and a non-operator interest in the Northeast Hardesty field from another oil and gas company.

"The clear positive is the accretion from selling an asset for 7 to 8 times cash flow from a company that is trading at less than 4 times," Corales said.

The deal is expected to close by July 31 but Whiting will continue to operate the assets until Oct. 31.

Whiting shares were down about 2 percent at $44.98 on the New York Stock Exchange. The broader Dow Jones U.S. Exploration and Production index was down about 2 percent.

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