Sempra US Gas & Power, a unit of Sempra Energy (NYSE: SRE), has entered into a purchase-and-sale agreement with a subsidiary of Tallgrass Development LP to sell Sempra US Gas & Power's 25% interest in the Rockies Express Pipeline (REX) for $440 million in cash.
The transaction is subject to customary closing conditions and a right of first refusal. Sempra Energy expects the transaction to close in the second quarter and result in an after-tax loss of approximately $27 million.
Additionally, Sempra US Gas & Power intends to permanently release the remaining uncontracted capacity that it holds on REX that it had been releasing on an interim basis. The effect of the permanent capacity release is expected to result in a charge to earnings of between $100 million and $120 million during the second quarter 2016, representing an acceleration of losses that would otherwise be realized over the contract term, which extends through November 2019. It is expected that the $27 million after-tax loss from the sale, as well as the loss resulting from the permanent release of capacity, will be excluded from Sempra Energy's adjusted 2016 earnings guidance.
Rockies Express Pipeline LLC is a Delaware limited liability company engaged in the ownership and operation of the Rockies Express Pipeline, a 1,712-mile natural gas transmission pipeline that extends from Opal, Wyoming, and Meeker, Colorado, to Clarington, Ohio. Rockies Express Pipeline LLC is a joint venture of: a subsidiary of Tallgrass Development LP (50% share); Sempra US Gas & Power (25% share); and a subsidiary of Phillips 66 (25% share). A wholly owned subsidiary of Tallgrass Development LP operates the pipeline. Tallgrass Development LP is a member of the Tallgrass Energy family of companies, which includes Tallgrass Energy Partners LP (NYSE: TEP) and Tallgrass Energy GP LP (NYSE: TEGP).