Pipeline operator Summit Midstream Partners has announced its intention to sell its Utica shale assets to midstream company MPLX for $625 million in cash. The assets included in the deal are the company’s 36% interest in the Ohio Gathering Company, its 38% stake in the Ohio Condensate Company, and its wholly owned Utica assets.
The decision to proceed with the sale followed a strategic review process initiated by Summit’s board of directors in collaboration with external advisors. This process was first disclosed in October of last year.
Upon the announcement of the sale, Summit’s shares experienced a significant 38% increase, reaching $26.88, their highest point since December of 2021. This surge is largely attributed to the fact that crude oil-rich basins will now make up more than half of the company’s portfolio post-sale.
The Marcellus and Utica shale regions, spanning Pennsylvania, West Virginia, and Ohio, have witnessed a decline in rig operations from the previous year as producers work to recover from historically low prices.
Heath Deneke, Summit’s CEO and chairman, expressed optimism about the sale, stating that it will create “substantial value creation opportunities” for stakeholders. Deneke also highlighted the potential for various strategies to be pursued to further enhance the company’s scale, particularly in the Permian and Rockies segments.
Additionally, the sale is expected to facilitate a reduction in debt and an increase in liquidity, as well as a “dramatic improvement” in the company’s credit profile. It is projected to provide a $400 million credit facility and over $325 million of unrestricted cash. Furthermore, the company revised its earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance for this year to $220 million, up from $185 million.
Morningstar analyst Stephen Ellis commented on the sale, stating, “MPLX’s experience and likely close integration with its own MPLX assets means this is likely a plug-and-play transaction. The valuation at around eight times 2024 EBITDA looks reasonable.”
In conclusion, Summit Midstream Partners’ decision to sell its Utica shale assets signifies a significant strategic shift for the company. With the promise of substantial value creation and improved financial outlook, the sale is poised to have a positive impact on the company’s future prospects.