"These non-core divestitures are an extension of our strategy to strengthen our investment-grade balance sheet, consolidate around our core, and provide additional flexibility to strategically reinvest capital in key growth projects," said Barry E. Davis, EnLink Chairman and Chief Executive Officer. "The Chisholm III expansion project solidifies EnLink's presence as one of the top midstream providers in the STACK, an area that continues to outperform, and underscores our strategy of positioning ourselves in the top regions with extraordinary growth potential."
EnLink to Invest Non-Core Divestiture Proceeds in Core Growth Areas
EnLink agreed to monetize its approximately 31 percent common ownership interest in HEP for net proceeds of approximately $190 million. Alberta Investment Management Corp. (AIMCo) and management will acquire a common ownership stake in HEP as a result of EnLink's divestiture, which follows AIMCo's preferred investment in HEP in August 2016.
In a separate transaction, EnLink simultaneously signed and closed an agreement today to sell its North Texas Pipeline assets in the Barnett Shale to Atmos Energy Corp. EnLink maintains capacity on the pipeline at competitive rates and at levels sufficient to support its current and expected operations.
The net proceeds of $275 million from the transactions represent a multiple of approximately 16 times the non-core assets' aggregate projected 2017 adjusted EBITDA contributions of $17 million to EnLink. These non-core assets are expected to provide adjusted EBITDA contributions of approximately $25 million for 2016. A reduction from 2016 to 2017 is due primarily to AIMCo's investment in preferred equity of HEP in August 2016. Adjusted EBITDA is a non-GAAP measure and is explained in greater detail under "Non-GAAP Financial Information."
Net proceeds from these non-core asset divestitures, along with planned at-the-market equity issuances, will fund the majority of expected equity needs for EnLink's 2017 capital expenditures program, which includes $100 million of investment to complete the Chisholm III facility and the first installment payment of $250 million related to the January 2016 acquisitions of certain subsidiaries of Tall Oak Midstream, LLC.
The HEP transaction is expected to close during the first quarter of 2017, subject to customary closing conditions, including regulatory approvals.
Producer Demand Driving Growth in the STACK
Due to robust producer customer activity in the STACK and the continuation of successful well results from EnLink's dedicated acreage, the company will invest approximately $100 million in 2017 to construct the new 200 MMcf/d Chisholm III plant, which is expected to be operational by year-end 2017.
Upon completion of the Chisholm III expansion, EnLink's Central Oklahoma processing capacity will total approximately one billion cubic feet per day, which represents nearly a three-fold increase from the 350 MMcf/d of capacity operated in 2015, and makes EnLink one of the largest gas processors in the STACK. EnLink's Central Oklahoma platform is underwritten by long-term, fee-based contracts from major producers.
EnLink's incremental processing capacity will also generate meaningful increases in natural gas liquids (NGLs) produced from the Central Oklahoma platform, which will in turn be transported on the company's Cajun-Sibon pipeline. The NGL output increases are expected to benefit the entirety of the company's Louisiana NGL footprint and current estimates project that throughput on Cajun-Sibon will reach capacity in the second quarter of 2017.
About the EnLink Midstream Companies
EnLink Midstream is publicly traded through two entities: EnLink Midstream, LLC (NYSE: ENLC), the publicly traded general partner entity, and EnLink Midstream Partners, LP (NYSE: ENLK), the master limited partnership entity. EnLink Midstream is a leading, integrated midstream company with a diverse geographic footprint and a strong financial foundation, delivering tailored customer solutions for sustainable growth.
EnLink Midstream's assets are located in many of North America's premier oil and gas regions, including Oklahoma's Midcontinent, the Permian Basin, and the Gulf Coast region. Based in Dallas, Texas, EnLink Midstream's assets include approximately 11,000 miles of gathering and transportation pipelines, 21 processing plants with approximately 4.4 billion cubic feet per day of processing capacity, seven fractionators with approximately 260,000 barrels per day of fractionation capacity, as well as barge and rail terminals, product storage facilities, purchase and marketing capabilities, brine disposal wells, an extensive crude oil trucking fleet, and an equity investment in a private midstream company.
Additional information about the EnLink companies can be found at www.EnLink.com.
Additional Transaction Details
EnLink expects to report pre-tax losses in the fourth quarter of 2016 associated with the sale of non-core assets in the range of $35 to $40 million. The losses are largely related to the increases in carrying values due to fair market valuation adjustments at the time of EnLink's formation in March 2014. For tax purposes, an aggregate gain of approximately $150 million will be realized at the closings of the transactions. The majority of the tax gains are expected to be allocated to ENLK unitholders on a pro-rata basis as part of the fiscal 2017 Schedule K-1 process, with a small portion expected to be allocated during 2016.
This press release contains forward-looking statements within the meaning of the federal securities laws. These statements are based on certain assumptions made by ENLK and the ENLC based upon management's experience and perception of historical trends, current conditions, expected future developments and other factors ENLK and ENLC believe are appropriate in the circumstances. These statements include, but are not limited to, statements about the expansion project's characteristics, the expansion project's customers, forecasts regarding asset capacity, project costs and timing for becoming operational for the project discussed above, the completion of the transactions described above, future financial projections, future operating results, objectives, expectations and intentions that are not historical facts. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of ENLK and ENLC, which may cause ENLK's and ENLC's actual results to differ materially from those implied or expressed by the forward-looking statements. These risks include, but are not limited to, the failure to consummate the transactions, the risk that the expansion project is not completed on time or at all, the risk that the expansion project costs more than expected, regulatory, economic and market conditions and other risks discussed in ENLK's and ENLC's filings with the Securities and Exchange Commission. ENLK and ENLC have no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Non-GAAP Financial Information
This press release contains a non-generally accepted accounting principle financial measure that we refer to as adjusted EBITDA. We define adjusted EBITDA as net income (loss) plus interest expense, provision for income taxes, depreciation and amortization expense, impairment expense, unit-based compensation, (gain) loss on non-cash derivatives, (gain) loss on disposition of assets, successful transaction costs, accretion expense associated with asset retirement obligations, reimbursed employee costs, non-cash rent and distributions from unconsolidated affiliate investments less payments under onerous performance obligations, non-controlling interest, ENLC's interest in the adjusted EBITDA of Midstream Holdings prior to the EnLink Midstream Holdings, LP ("Midstream Holdings") drop downs and income (loss) from unconsolidated affiliate investments. Growth capital expenditures generally include capital expenditures made for acquisitions or capital improvements that we expect will increase our asset base, operating income or operating capacity over the long-term. Adjusted EBITDA of Midstream Holdings is defined as Midstream Holdings' net income plus taxes, depreciation and amortization and distributions from unconsolidated affiliate investments less income from unconsolidated affiliate investments.
ENLK and ENLC believe this measure is useful to investors because it may provide users of this financial information with meaningful comparisons between current results and prior-reported results and a meaningful measure of ENLK's and ENLC's cash flow after it has satisfied the capital and related requirements of its operations. In addition, adjusted EBITDA achievement is a primary metric used in ENLK's credit facility and short-term incentive program for compensating its employees.
Adjusted EBITDA, as defined above, is not a measure of financial performance or liquidity under GAAP. It should not be considered in isolation or as an indicator of ENLK's and ENLC's performance. Furthermore, it should not be seen as a substitute for metrics prepared in accordance with GAAP. See ENLK's and ENLC's filings with the SEC for more information.
EnLink Midstream does not provide reconciliations of GAAP financial measures on a forward-looking basis because the companies are unable to predict with reasonable certainty impairments, depreciation and amortization, gains and losses on derivative activities and acquisition-related expenses without unreasonable effort. These items are uncertain, depend on various factors, and could be material to EnLink Midstream's results computed in accordance with GAAP.
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