HOUSTON — Houston-based oil producer Sanchez Energy Corp. is selling off pipelines, gathering and compression assets in South Texas to an affiliate for $345 million, becoming the latest shale driller to hawk midstream assets for much-needed cash.
The publicly traded company is selling 150 miles of gathering lines and other pieces of infrastructure to Sanchez Production Partners, a master limited partnership. An MLP is a tax-advantaged corporate structure. Both firms are run by the private Sanchez Oil & Gas Corp.
The pipelines and other midstream assets are in the Eagle Ford Shale in South Texas, where Sanchez Energy has 226,000 net acres of oil and gas land. The firm doubled its stake there last year when it bought properties from Royal Dutch Shell for $639 million.
Sanchez Energy said its midstream sale, expected to close next month, will bring its cash on hand to $618 million. It also has $300 million in untapped bank credit and $1.7 billion in long-term debt. The firm said it will use proceeds to buy assets, lease more property and accelerate drilling.
The midstream sale “highlights our ability to capture the full spectrum of value in our asset base, raise capital outside of traditional markets and improve our financial flexibility,” Sanchez Energy CEO Tony Sanchez III said in a written statement. He said the company may sell other such assets as it continues to drill in South Texas.
“We believe these strategies will be the key to maintaining a strong balance sheet,” Sanchez said.
When oil fetched $100 a barrel, several producers over the years had snapped up pipelines and tanks to transport and store their own crude. But with the plunge in crude prices, some are now selling the assets to raise cash.
Pioneer Natural Resources sold off pipelines and other midstream assets in the Eagle Ford earlier this year, collecting $1 billion, and Matador Resources recently sold off similar equipment for $143 million.
In a recent research note, Wunderlich Securities analysts said other drillers including Houston-based Noble Energy, Oasis Petroleum and Oklahoma City-based SandRidge Energy are among the handful of producers that could shore up cash by selling pipelines and tanks.