CorEnergy adds midstream asset to its portfolio

CorEnergy Infrastructure Trust, a Kansas-based firm focusing on US energy infrastructure, has agreed to acquire the Grand Isle Gathering System (GIGS), a subsea midstream pipeline system in the Gulf of Mexico, from oil and gas exploration and production company Energy XXI USA (EXXI) for $245 million in cash.

Under the terms of the agreement, expected to close by the end of June, CorEnergy will also assume abandonment liabilities related to the assets estimated at approximately $12.5 million.

Concurrently with the sale, EXXI will enter into an operating lease agreement whereby it will continue to have access to and operate the pipeline assets, which consist of gathering and transportation pipelines in the shallow waters of the Gulf of Mexico, as well as the Grand Isle terminal located onshore adjacent to EXXI’s shore base operations. EXXI will also retain any revenues generated from transporting third-party volumes.

According to CorEnergy, EXXI will operate the GIGS system under an 11-year agreement with an initial renewal term of nine years, subject to certain conditions.

The Grand Isle Gathering System comprises 153 miles of undersea pipeline that transports oil and water from six EXXI fields and one field operated by ExxonMobil. It also includes a 16-acre terminal that has four storage tanks, a saltwater disposal facility with three injection wells, and associated pipelines, land, buildings, and facilities.
GIGS currently transports approximately 60,000 barrels per day (18,000 barrels of oil and 42,000 barrels of water), with total capacity of 120,000 barrels per day.

“We are pleased to acquire the Grand Isle Gathering System (GIGS), a critical midstream infrastructure asset serving large oil-producing fields on the Gulf of Mexico shelf,” CorEnergy chief executive David Schulte said in a statement. “The long-lived system, including the on-shore facilities, will further diversify our growing infrastructure portfolio.”

According to Schulte, CorEnergy’s board of directors has confirmed that, upon closing, it intends to increase the annualised dividend rate from $0.54 per share to $0.60 per share, beginning with the distribution for the third quarter.

CorEnergy primarily owns midstream and downstream US energy infrastructure assets including pipelines, storage tanks, transmission lines and gathering systems. Its assets include Pinedale LGS, a liquids gathering system in Wyoming; the Portland petroleum products terminal facility in Oregon; the Eastern Interconnect Project, an electric transmission asset in New Mexico; and an investment in Black Bison Water Services, a service provider for the disposal of flowback and produced water generated from oil- and gas-producing wells in Wyoming, among others.

The firm’s history dates back to February 2007 when it launched an initial public offering under the name Tortoise Capital Resources (TTO), a closed-end management investment company regulated as a business development company. With most of its securities in energy-related companies and due to its close ties to the energy sector, TTO began to see opportunities in the direct ownership of infrastructure assets.

In December 2012, Tortoise Capital Resources changed its name to CorEnergy Infrastructure Trust. The move was part of the company's transition from a business development company managed by Tortoise Capital Advisors to a real estate investment trust managed by Corridor InfraTrust Management, a real property asset manager focusing on US energy infrastructure.

Corridor is an affiliate of Tortoise Capital Advisors, an investment manager specialising in listed energy investments, which was co-founded by Schulte. As of May 31, 2015, Tortoise Capital had approximately $18 billion in assets under management.