Sempra U.S.Gas & Power LLC is selling its 25% stake in the Rockies ExpressPipeline to Tallgrass DevelopmentLP for $440 million in cash. The Sempra Energy subsidiary expects the to close in thesecond quarter and result in an after-tax loss of $27 million, according to aMarch 29 statement.
Tallgrass Development already owns a 50% stake in the1,712-mile natural gas transmission pipeline that extends from Opal, Wyo., andMeeker, Colo., to Clarington, Ohio. Phillips 66 Co. owns the remaining 25% stake and has aright to purchase its proportionate share of Sempra's interest in the pipeline.
Assuming Phillips 66 does so, Tallgrass will only be able toacquire a little over 16.6% in the pipeline.
"After careful evaluation of our natural gas portfolio,we determined that our minority stake in REX is not consistent with ourlong-term growth strategy. While REX is an important part of the country'snatural gas pipeline system, we believe that given the changing marketconditions, we can more productively redeploy the proceeds from the REX saleinto long-term growth opportunities that better meet our strategy and riskprofile," Sempra U.S. President and CEO Patti Wagner said.
As part of the transaction, Sempra U.S. intends topermanently release the remaining uncontracted capacity on the pipeline, whichwill impact its second-quarter 2016 earnings by $100 million to $120 million —representing an acceleration of losses that would otherwise be realized overthe contract term which extends through November 2019.
Both, the $27 million after-tax loss and the loss resultingfrom the permanent release of capacity, will be excluded from Sempra Energy'sadjusted 2016 earnings guidance. The transaction has been approved by theboards of Tallgrass and Sempra and is subject to closing conditions.
"While Sempra Energy's earnings from REX for Marchthrough December 2016 will be reduced by approximately $60 million, forecastedearnings from REX were expected to be immaterial to Sempra Energy beginning in2020. We expect to redeploy the sale proceeds to mitigate the loss of REXearnings in the near term and increase our long-term earnings profile,"Sempra Energy Executive Vice President and CFO Joseph Householder added.
Tallgrass Development is a member of the Tallgrass Energy familyof companies, which includes Tallgrass Energy Partners LP.