An affiliate of infrastructure investor Global Infrastructure Partners (GIP) agreed Monday to pay $1.825 billion-plus to buy Medallion Gathering & Processing LLC (MGP), which owns the largest privately held crude oil transportation system in the Permian Basin’s Midland sub-basin.
MGP, owned by The Energy & Minerals Group (51%) and Laredo Petroleum Inc. (49%), has more than 800 miles of pipeline, 670,000 dedicated acres and total areas of mutual interest approaching four million acres. It also operates a newly constructed crude oil gathering and transportation system. Laredo had indicated in July that the system was up for sale.
"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," said Laredo CEO Randy A. Foutch. "This eventually grew into the premier pipeline system in the Midland Basin.”
Tulsa-based Laredo expects to reap around $825 million net, with proceeds used to pay down debt.
“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,” Foutch said.
"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.”
Expected transaction proceeds should cut Laredo’s outstanding debt balance by more than half, according to Foutch.
“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.”
Based on the current environment for commodity prices, service costs, rig count and production growth, Laredo is forecasting operating cash flow to increase sequentially and becoming cash flow neutral by the end of 2019.
GIP owns a broad portfolio of oil and gas midstream investments in the United States. It owns stakes in, among other things, Bakken Shale midstream projects and liquefied natural gas export facilities.
The MGP acquisition “underscores GIP’s long term partnership approach and strategy of investing in superior quality platforms that deliver the highest level of customer service,” said GIP Chairman Adebayo Ogunlesi. “Our extensive experience as an energy infrastructure investor, access to significant capital and operational expertise make GIP uniquely well qualified to acquire Medallion.”
MGP is retaining its “Medallion” brand and would operate as a GIP portfolio company headquartered near Dallas in Irving. The leadership team, which is investing with GIP in the transaction, is to remain in place.
MGP is the sole owner of the Midland pipeline system, while EMG would continue to own Medallion Delaware Basin LLC. The Midland and Delaware pipeline systems are to be managed by MGP’s current leadership team.
"This transaction is an exciting and transformational moment in Medallion’s evolution,” said MGP CEO Randy Lentz. “Combining Medallion’s current team...with GIP’s financial strength and commitment to operational excellence will be the catalyst for further expansion of Medallion’s midstream infrastructure in the Permian Basin and ability to provide an even greater level of service to our producer customers.”