Laredo Monetizes Stake In Medallion Pipeline To Cut Debt

Energy explorer Laredo Petroleum, Inc. (NYSE:LPI) recently entered into a deal to divest stake in Medallion Gathering & Processing, LLC which is a pipeline unit located in Permian Basin. Laredo holds a 49% stake in the pipeline while the remaining interest is owned by private investment firm The Energy & Minerals Group. Private equity firm Global Infrastructure Partners will acquire the Medallion pipeline for $1.825 million along with additional cash consideration. Subject to satisfactory closing conditions, Laredo will receive $825 million from the transaction.

Laredo made its initial investment in the Medallion-Midland Basin crude oil pipeline system in 2013. The Medallion unit comprises more than 800 miles of pipelines spread over 325,000 net acres. In around four years, the value of the pipeline has increased by $1 billion. The sale proceeds which will be received by Laredo reflect three times the invested capital and equivalent to an IRR of more than 65%.

Laredo will use the sale proceeds to strengthen its balance sheet by reducing its $1.4 billion debt as on July 30. Interest savings arising from debt reduction along with favorable expected market conditions and production growth is likely to make the firm well positioned to become cash flow neutral by the end of 2019. The deal will also provide the firm with enough financial flexibility to focus on core operations and accelerate drilling activities in the Upper and Middle Wolfcamp formations.

Laredo is a Tulsa, OK-based independent energy player, engaged in the acquisition and development of oil and gas properties. The company also provides transportation and gathering services. The company’s assets mainly located in the Permian Basin and Mid-Continent regions of the United States. The company presently carries a Zacks Rank #3 (Hold). Laredo has lost 13% of its value year to date compared with 23% decline of its industry.

Some better-ranked players in the same industry are Lonestar Resources, Ltd. (NASDAQ:LONE) , Viper Energy Partners LP (NASDAQ:VNOM) and Bill Barrett Corporation (NYSE:BBG) . While Lonestar Resources and Viper Energy sport a Zacks Rank #1 (Strong Buy), Bill Barrett carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lonestar Resources is expected to achieve year-over-year growth of 60.20% and 79.67% in its sales and earnings in 2017.

Viper Energy reported positive earnings surprise in the last four quarters, the average being 18.36%.

Bill Barrett delivered average positive earnings surprise of 12.74% in the trailing four quarters.

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