(Reuters) - Oil and gas producer Laredo Petroleum (LPI.N) said on Monday it would sell its stake in a Permian pipeline unit for $825 million, lower than some industry estimates and prodding the company’s shares down nearly 8 percent.
Laredo and private equity firm Energy & Minerals Group said they would sell the unit, Medallion Gathering & Processing LLC, for $1.83 billion to infrastructure fund Global Infrastructure Partners.
Williams Capital Group analyst Gabriele Sorbara said Laredo’s estimated net proceeds of $825 million missed the brokerage’s expectation of $892 million and Wall Street’s expectations of as much as $1.25 billion.
Medallion Gathering is the largest privately-held crude oil transportation systems in the Midland basin, located in the east of the oil-rich Permian basin in West Texas, and has more than 800 miles of pipelines.
Laredo had said in July it was planning to sell the unit, in which it has a 49 percent stake, with Energy & Minerals Group owning the rest.
Pipeline companies such as Plains All American Pipeline LP (PAA.N) and Kinder Morgan Inc (KMI.N) have also signed deals for assets in the Permian as oil producers make a beeline for the biggest shale play in the United States.
Laredo, which made it first investment in the unit in late 2013, said the $825 million proceeds is more than three times its invested capital and equivalent to an internal rate of return of more than 65 percent. (bit.ly/2fCsC0k)
The company said it expects the deal will not impact its cost structure. It plans to use the proceeds to mainly pay down debt and estimated the interest savings to help it become cash-flow neutral by the end of 2019.
Medallion had Jefferies LLC and Wells Fargo Securities LLC as financial advisers and Locke Lord LLP as its legal counsel.
Akin Gump Strauss Hauer & Feld LLP is Laredo’s legal counsel and Global Infrastructure Partners was advised by White & Case LLP.
Reporting by John Benny in Bengaluru; Editing by Arun Koyyur and Savio D'Souza