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Tuesday, February 10, 2015

Companies Trying to Weather Storm by Selling Valuable Midstream Assets

From Bloomberg Business:
Oil and natural gas producers confronting a cash drain are auctioning off the family silver: pipelines and processing plants. 
Bakken shale billionaire Harold Hamm and Canadian gas giant Encana Corp. are among the latest to peddle some of their most valuable assets and steadiest earners. They don’t have much choice -- as the oil price collapse deflates the value of drilling operations, pipes and plants are about the only things attracting big payments for producers vying to stay afloat. 
The deals for quick cash are another facet of the energy industry meltdown leading to more than $40 billion in spending cuts and thousands of job losses. The capital infusion comes with a trade-off because producers pay more to process and transport fuel over the lines and in the facilities they used to own.

“At some point they all get desperate enough,” said Michael Formuziewich, a fund manager at Leon Frazier & Associates Inc. in Toronto. Low prices will spur a rise in deals, he said. “The longer it goes on, the more we’ll see.” 
Midstream operations, as they’re known in the oil and gas industry, have retained their value even with crude trading near six-year lows because they act as toll booths that generate dependable cash, regardless of commodity prices. Offloading them lets producers avoid selling the oil fields at the heart of their businesses at steep discounts.
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