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QEP Sells Gas-Rich Midstream Assets to Tesoro for $2.5B

Seeking to improve its financial and competitive positions, Denver-based QEP Resources unit QEP Field Services is selling its natural gas-rich midstream assets to Tesoro Logistic LP (TLLP) in an all-cash transaction valued at $2.5 billion.

The sale includes $230 million to refinance debt at QEP Midstream Partners LP, which is being sold. The sale underscores QEP's interest in investing more in the exploration and production (E&P) side of its business, while San Antonio-based Tesoro Logistics, a master limited partnership formed in 2011 by Tesoro Corp., is using the acquisition to expand into gas handling and marketing, in addition to its prime focus on crude oil products. TLLP will add more than 2,000 miles of pipelines, increasing to overall capacity 2.9 Bcf/d of gas volumes and 54,000 b/d of oil volumes.

The deal, which is subject to normal closing conditions and regulatory approvals, is expected to close before the end of this year, a spokesperson said. QEP’s decision to sell its midstream businesses came from an ongoing review of strategic alternatives for maximizing shareholder value.

"QEP's board of directors, in consultation with its financial advisers, unanimously determined that the outright sale of the midstream business for cash is the best course to achieve the highest value for QEP shareholders," said CEO Chuck Stanley.

QEP has E&P operations in the Rockies-North Dakota and Texas-Louisiana regions. The midstream sale involves its assets in four basins in the Rockies and North Dakota through QEP Midstream Partners, in which the QEP parent has a majority ownership and 100% ownership of the partnership's general partner.

Involved in the sale are gas gathering, processing and pipelines in the Green River and Vermillion basins in southwest Wyoming; processing, gathering pipelines and compression in the Uinta in northeast Utah; and oil/gas gathering, processing and pipes in the Williston Basin in North Dakota.

"Post-closing QEP will emerge as a more competitive and financially strong independent E&P company with assets in two of North America's most prolific crude oil provinces -- the Williston and Permian basins -- and low-cost, high-quality natural gas properties in the Rockies and northwest Louisiana," said Stanley, noting that QEP Field Service's Haynesville Shale gathering assets are not being sold.

"The sale of our midstream business is a significant milestone in the strategic repositioning of our company as we believe QEP will be better positioned to deliver continued growth in production and adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] in 2015 and beyond."

Stanley said proceeds from the sale will be used to return capital to shareholders, reduce debt, and improve QEP's competitive position through greater investment in its capital E&P assets.

Tesoro Corp. CEO Gregory Goff said during a conference call Monday the acquisition allows the logistics provider to become a full-service firm with "an opportunity to expand its presence and accelerate growth opportunities." Adding QEP Field Services gives TLLP access to more diverse basins, commodities and customers, Goff said.

With the acquisition, TLLP will have about half of its sales coming from companies other than Tesoro Corp.

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