Matador Resources Co. (NYSE: MTDR) has a definitive agreement to sell a wholly owned subsidiary of Matador that owns certain natural gas gathering and processing assets in the Delaware Basin in Loving County, Texas (the Loving County system), to a subsidiary of EnLink Midstream Partners LP (NYSE: ENLK) for $143 million. The transaction is expected to close in the fourth quarter of this year.
The assets include a cryogenic natural gas processing plant with 35 million cubic feet per day of inlet capacity (the processing plant), and six miles of high-pressure gathering pipeline which connects a Matador-owned gathering system to the processing plant, which has been operational for two weeks and is currently processing about 19 million cubic feet of natural gas per day.
In conjunction with the sale of the Loving County system, Matador will dedicate its current leasehold interests in Loving County pursuant to a 15-year, fixed-fee gathering and processing agreement and provide a volume commitment in exchange for priority-one service. Matador can, at its option, dedicate any future leasehold acquisitions in Loving County to a subsidiary of EnLink. In addition, Matador retains its natural gas gathering system up to a central delivery point and its other midstream assets in the area, including oil and water gathering systems and saltwater disposal wells. Finally, Matador has the ability to defer taxes related to the sale of the Loving County system through potential like-kind exchange transactions.
Upon closing, Matador expects to have over $500 million in liquidity including nothing drawn against its revolving credit facility borrowing base of $375 million. Thus, the company has ample liquidity to execute its capital plans in 2015 and 2016 and further capitalize on its current opportunities in the Delaware Basin. In addition, immediately following the closing of the transaction, Matador expects its net debt to trailing 12-month Adjusted EBITDA ratio to be approximately 1.0x.
Global Hunter Securities analysts commented, “A positive transaction for MTDR as it quickly creates value from its midstream investments in the Delaware Basin ($48MM invested in 2015). The divestiture bulks up liquidity and further strengthens the balance sheet (without selling producing assets), giving MTDR plenty of flexibility as it designs its 2016 program (we see the $143MM substantially plugging our forecast ~$200MM spending deficit in ’16).”