PDC Energy agrees to divest Delaware Basin midstream assets

PDC Energy has signed two definitive agreements to divest its gas and water midstream assets in the Delaware Basin for a total consideration of $310m.

The transactions will include upfront cash proceeds of $225m to be paid at the closure of the deals and a further $82m as an unconditional payment one year post-closing.

Under the terms of the first transaction, PDC agreed to divest its Delaware Basin gas-related midstream assets, including long-term future gathering and processing rights, to EagleClaw Midstream. At closing, this $182m transaction includes a deferred unconditional payment of $82m.

The agreement will ensure long-term flow assurance to PDC through Eagleclaw’s processing capacity system of 1.3 billion cubic feet per day (Bcf/d).

The transaction will also enable transportation of residue gas to both Waha and the Gulf Coast markets via the 1.2Bcf/d, 40-mile Delaware Link pipeline and the Permian Highway pipeline.

Under development by EagleClaw, Kinder Morgan and Exxon Mobil, the Permian Highway pipeline is expected to be placed into service in the second half of next year.

Last month, EagleClaw made a final investment decision to build the Delaware Link pipeline from its three existing gas processing facilities in Reeves County, Texas.

PDC also agreed to divest its water-related midstream assets to a subsidiary of WaterBridge Resources. The deal will raise total proceeds of $125m at closing.

In addition, the company reached long-term commercial service agreements for its gas gathering, compression, processing and transportation, and water gathering and disposal.

These commercial service agreements contain incentive-based provisions that could offer potential future payments worth up to an additional $135m.

PDC Energy corporate development and strategy executive vice-president Lance Lauck said: “These transactions represent a tremendous value-add for PDC. I’m very proud of our team’s ability to find the right balance between return on investment and market-competitive fee structures while maintaining our current strong margins.

“Additionally, we expect our long-term service agreements to not only provide flow assurance but also enable us to focus on our core upstream business and avoid substantial future midstream capital investment.”

The firm will use the cash proceeds from these transactions to pay off its outstanding revolver balance and for future capital investments. The transactions are expected to be completed this year.