Summit Midstream has sold some of its Piceance Basin natural gas pipeline and processing assets for $12 million.
The company sold more than 1,200 miles of pipelines and one active processing plant to Utah Gas Corp., said Blake Motley, vice president of strategy and head of investor relations at Summit Midstream. The transaction was completed Dec. 1.
Utah Gas Corp. is an oil and gas company based in Rangely and operating in Colorado and Utah. The assets it acquired are in far-western Mesa, Garfield and Rio Blanco counties, and Utah.
Houston-based Summit Midstream, which operates in six states, is retaining 565 miles of pipelines in the Piceance Basin and one processing plant. Those holdings are farther east in Mesa and Garfield counties, closer to the heart of local natural gas production. They also have been accounting for most of the Piceance gas handled by the company, which is what drove the sale of the assets farther west.
Motley said that altogether, in the third quarter of last year Summit Midstream’s Piceance Basin was transporting an average of 446 million cubic feet of gas a day, but only 25 million a day was from the assets it later sold. The company says those assets were underutilized and the sale significantly reduced its operating expenses in the Piceance, allowing for more effective operation.
“Definitely it was a very inefficient system. I mean, think about what it takes to maintain that much pipeline mileage. It requires a pretty robust operating team just to cover that footprint, but you’re not generating really any revenue to speak of,” Motley said.
The purchase boosts the corporation’s transportation capacity. Its website says it owns more than 250,000 acres of mineral leases and more than 700 wells. It also has more than 500 miles of gas-gathering pipelines and two gas-processing plants, near Mack and Rangely.
A Utah Gas representative couldn’t be reached for comment.
Motley said Summit Midstream entered the Piceance Basin in 2011 when it bought local assets from Encana. He said the assets it recently sold are ones it bought from Energy Transfer Partners in 2012.
A Summit Midstream news release then said it agreed to pay $207 million to Energy Transfer Partners for more than 1,600 miles of pipeline as well as gas facilities in the Piceance and Uinta basins.
Drilling activity has fallen considerably since 2012. Summit Midstream had to record a $14.2 million non-cash impairment on its recent sale to account for the discrepancy between the sale price and the value it had been ascribing to the assets.
Summit Midstream’s remaining Piceance Basin assets are handling a declining volume of gas because of factors including low natural gas prices. No drilling activity feeding gas into its local system occurred last year and none is expected this year, meaning the gas the system handles comes only from existing wells.
That said, that system also generates significant cash for the company, it says. In the fourth quarter, what Summit Midstream calls its legacy areas, including the Piceance, generated $39 million in earnings before interest, taxes, depreciation and amortization are factored in, and its Piceance holdings accounted for about $24 million of that amount. But Summit Midstream only had to invest $200,000 in capital expenditures in those areas during the same three months.
Summit Midstream is interested in possibly selling more assets as it pays down debt and strengthens its balance sheet. It reported a net loss of $327.1 million in the fourth quarter. Motley said its remaining Piceance asset could be among those it sells, but it could be hard to find a buyer to pay more for that asset than what it is worth for Summit Midstream to keep it.
“If you think about it from our perspective, it’s a valuable asset because it throws off so much cash flow. It’s also very predictable in that regard,” Motley said.