QEP Resources, Inc. (QEP) announced that it has entered a deal with Tesoro Logistics LP (TLLP) to sell its natural gas gathering and processing subsidiary, QEP Field Services Company. As part of this $2.5 billion transaction, the Tesoro Corporation (TSO) affiliate will also acquire ownership interest in QEP Midstream Partners, LP (QEPM).
QEP Field Services is the owner of a 2% general partner interest and 56% limited partner interest in QEPM. Hence, the deal will cause a change in control for QEPM. The $2.5 billion cash consideration includes a $230 million amount, which will be used to refinance debt at QEP Midstream.
QEP Resources will, however, continue to be the owner of the Haynesville Gathering System belonging to QEP Field Services. The deal is expected to close by the end of 2014.
The assets under sale include natural gas and crude oil gathering and transmission pipelines spread across 2,000 miles, with a throughput capacity of over 2.9 billion cubic feet per day of natural gas and 54,000 barrels of crude oil per day.
Management at QEP Resources mentioned that the transaction is a strategic move by the company to maximize shareholder value. The company intends to use the proceeds to return capital to investors, lower its debt burden and invest more toward its profitable exploration and production (E&P) assets.
The deal will facilitate QEP Resources to become an independent E&P company with a sound financial base and assets in key locations. The company has oil assets in the prolific Williston and Permian Basins, and good quality natural gas assets in the Rocky Mountains and northwest Louisiana.
On the other hand, the acquisition is an important move for Tesoro as well. It will add stable fee-based business to the partnership’s asset portfolio, thereby making it a leading full-service, integrated logistics unit. The addition of these natural gas assets will enable Tesoro to provide integrated crude oil and natural gas services to producers, thus expanding its service offerings.
At present, QEP Resources has a Zacks Rank #3 (Hold) while Tesoro Logistics holds a Zacks Rank #4 (Sell).
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