Hess Corp. is combining forces with Global Infrastructure Partners to create a premier midstream joint venture company, called Hess Infrastructure Partners.
As part of the joint venture, Hess announced June 11 that it has agreed to sell a 50 percent interest in its Bakken midstream assets to Global Infrastructure Partners, a leading global infrastructure investor with an extensive midstream energy investment track record, for cash consideration of $2.675 billion.
Upon closing, the joint venture will incur $600 million of debt through a five-year loan with proceeds distributed equally to both partners, resulting in total after-tax cash proceeds, net to Hess, of $3 billion.
In addition the joint venture will have independent access to capital including a $400 million five-year revolving credit facility, which is fully committed. The joint venture upon closing plans to continue to pursue a proposed initial public offering (IPO) of Hess Midstream Partners LP common units.
“This transaction delivers significant and immediate value to our shareholders,” said CEO John Hess. “The joint venture with its strategically located assets will be one of the largest midstream operators in the Bakken. By capitalizing on the financial strength and midstream energy experience of Global Infrastructure Partners, the joint venture will be in a strong position to fund future energy infrastructure investments and continue to grow its midstream business.”
With the proceeds from this transaction, plus cash on hand and an untapped $4 billion revolving credit facility, Hess will have a highly advantaged liquidity position compared to its peer group. Consistent with its financial strategy, the company will use proceeds from this transaction to preserve the strength of its balance sheet in the current oil price environment, provide additional financial flexibility for future growth opportunities and continue to repurchase stock on a disciplined basis.
The transaction is subject to customary closing conditions and is expected to be completed early in the third quarter of 2015. The Hess midstream assets to be included in the joint venture are:
- Natural gas processing plant in Tioga, North Dakota;
- Rail loading terminal in Tioga and associated rail cars;
- Crude oil truck and pipeline terminal in Williams County, North Dakota;
- Propane storage cavern and rail and truck transloading facility in Mentor, Minnesota; and
- Crude oil and natural gas gathering systems in North Dakota.
As a result of the joint venture, Hess will begin reporting its Bakken-related midstream operations as a separate midstream segment in its consolidated financial statements and will begin disclosing certain historical and forward-looking financial information for this segment. For the three months ended March 31, the midstream segment had net income of $27 million and earnings before interest, taxes, depreciation and amortization (EBITDA) of $64 million.
Hess expects midstream segment EBITDA for the twelve months ending March 31, 2016, to be $290 million to $300 million. Hess also expects capital expenditures to be funded by the joint venture on a 100 percent basis for the same period to be $325 million to $350 million.
The board of directors for the new joint venture company will be comprised of six directors, with three members elected by Hess and three by Global Infrastructure Partners. Pursuant to the joint venture agreement, Hess, through its elected directors, will retain control of the midstream assets’ operations and annual budgeting process. Other decisions, such as capital structure, debt and equity offerings, and new contracts will require joint approval by both Hess and Global Infrastructure Partners elected directors.
Hess will operate the assets owned by the joint venture as a contract service provider. Employees who work in these assets today will remain Hess employees.