Global Infrastructure Partners (GIP), an independent infrastructure fund manager, has agreed to acquire 50% interest in Bakken shale midstream assets belonging to Hess Corp. for $2.675 billion in cash.
The two firms will subsequently create a midstream joint venture named Hess Infrastructure Partners (HIP). The deal is expected to close in the third quarter. Hess last year reported its intention to form a Bakken midstream master limited partnership (OGJ Online, July 30, 2014).
The Hess midstream assets to be included in the joint venture include the following:
• Rail loading terminal in Tioga and associated rail cars.
• Crude oil truck and pipeline terminal in Williams County, ND
• Propane storage cavern and rail and truck transloading facility in Mentor, Minn.
• Crude oil and natural gas gathering systems in North Dakota.
“The joint venture with its strategically located assets will be one of the largest midstream operators in the Bakken,” said John Hess, Hess Corp. chief executive officer. “By capitalizing on the financial strength and midstream energy experience of [GIP], the joint venture will be in a strong position to fund future energy infrastructure investments and continue to grow its midstream business.”
Hess says it will have “a highly advantaged liquidity position” with the proceeds from the deal along with cash on hand and an untapped $4-billion revolving credit facility. The company will use proceeds from the deal 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 midstream segment during the first quarter reported a net income of $27 million. Hess expects capital expenditures to be funded by the joint venture on a 100% basis for the 12 months ending Mar. 31, 2016, to be $325-350 million.
HIP’s board will consist of six directors, with three members elected by Hess and three by GIP. Pursuant to the 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 GIP elected directors.
Hess will operate the assets owned by the JV as a contract service provider. Employees who work in the assets today will remain Hess employees.