Late Friday El Paso Corp. announced that it entered into a definitive agreement to sell its exploration and production (E&P) unit, EP Energy Corp., for close to $7.15 billion to affiliates of Apollo Global Management LLC and Riverstone Holdings LLC, as well as Access Industries Inc. and other parties.
El Paso last May announced that it intended to spin off the E&P unit as a publicly traded company so that it could concentrate on its natural gas pipeline and midstream units. However, after agreeing to buy El Paso in October, Kinder Morgan Inc. (KMI) executives indicated that an outright sale, as a complete package or in pieces, was preferred over a spinoff (see NGI, Oct. 24, 2011).
Financial information on El Paso’s exploration business apparently was offered to potential buyers in January.
The sale of the E&P business rivals a deal last November by a KKR & Co.-led group to acquire privately held Samson Investment Co. for $7.2 billion (see NGI, Nov. 28, 2011).
The sale of EP Energy is dependent upon completion of the KMI-El Paso merger, which is expected to close in 2Q2012, subject to regulatory approvals. If consummated, the sale of EP Energy would be completed at about the same time, according to KMI.
“As announced in October 2011, El Paso’s net operating loss carry-forwards will largely offset taxes associated with the sale of the exploration and production assets, and thus almost the entirety of the proceeds from this sale will be used to substantially reduce the debt borrowed by KMI to fund the cash portion of its purchase of El Paso,” KMI stated.
The pending sale would allow the E&P unit to be kept as a “single entity,” noted KMI CEO Rich Kinder. “We thank the EP Energy employees for their efforts to build a strong company and in facilitating the sales process.”
EP Energy is divided into four units: three in the United States and an international business.
In the United States the southern division has activity ongoing in the Eagle Ford Shale, Wolfcamp formation and in the shallow waters of the Gulf of Mexico. The central division’s assets are spread across East Texas and North Louisiana in the Haynesville Shale, as well as in South Louisiana’s Wilcox formation.The western division activity is concentrated he Altamont oil play, Raton Basin and the Rocky Mountains.Overseas, El Paso operates in Brazil’s offshore, in the Camamu, Espirito Santo and Potiguar basins. It also has ongoing activity in Egypt’s Western Desert.
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