CorEnergy Completes Acquisition of LGS from Ultra Petroleum
Positioning CorEnergy to Qualify as a REIT for 2013
LEAWOOD, Kan.--(BUSINESS WIRE)--
CorEnergy Infrastructure Trust, Inc. ("CorEnergy") (NYSE: CORR) today
announced that it has closed its previously announced acquisition of a
Liquids Gathering System ("LGS") from Ultra Petroleum Corp. (NYSE: UPL).
The LGS will continue to be operated by UPL under a long-term triple net
lease. Located in the Pinedale field in Wyoming, the LGS is a vital
component of natural gas production in one of the top five natural gas
fields in the U.S.
"We are pleased to have completed our largest acquisition of
REIT-qualifying assets to-date," said Chief Executive Officer, David
Schulte. "This is a mission-critical asset, with a high-quality tenant,
and it represents a cornerstone for our energy infrastructure REIT
strategy. The acquisition is accretive to our distribution and our Board
of Directors has indicated that it intends to approve an increase in our
quarterly distribution from $0.11 to $0.125 for the first full quarter
following the acquisition. The REIT structure provides our investors
direct access to U.S. energy infrastructure in an attractive vehicle
with transparent cash flow."
CorEnergy paid $205 million in cash and approximately $24 million in
certain other equity securities for the purchase of the LGS from UPL.
The cash portion of the acquisition was funded with the net proceeds of
CorEnergy's $78 million common stock offering, approximately $26 million
from the sale of CorEnergy's publicly-traded master limited partnership
equity securities, approximately $5 million of cash from CorEnergy's
balance sheet, a $30 million concurrent co-investment from Prudential
Capital Group and $70 million in debt financing.
As a result of the transaction, CorEnergy's ratio of total debt to total
assets is approximately 25 percent. CorEnergy expects to maintain a debt
to asset ratio of between 25 and 50 percent.
The LGS now accounts for approximately 81 percent of CorEnergy's total
assets on a pro forma basis as of August 31, 2012 and the LGS lease
payments account for approximately 66 percent of total revenue on a pro
forma basis for the nine months ended August 31, 2012.
CorEnergy anticipates that the LGS acquisition will allow the Company to
meet the income and asset tests necessary to qualify and elect to be
taxed as a REIT for 2013. Based on the value of CorEnergy's existing
assets as of August 31, 2012, the Company expects that pro forma income
for the nine month period ended August 31, 2012 would satisfy the REIT
income tests and that at least 75 percent of our pro forma assets as of
August 31, 2012 will qualify under the REIT requirements. Because
certain of CorEnergy's assets may not produce REIT-qualifying income or
be treated as interests in real property, the Company intends to
contribute those assets into taxable REIT subsidiaries prior to 2013, in
order to qualify as a REIT for 2013.
The character of distributions made during the year may differ from
their ultimate characterization for federal income tax purposes. As of
November 30, 2012, the Board of Directors had declared total
distributions of $0.44 per share ($0.11 per quarter) in the current
year. CorEnergy expects to announce an anticipated annual distribution
increase of $0.06 per share from $0.44 to $0.50 per share, as the
Company's current investments and LGS asset acquisition are expected to
allow for such an annual distribution rate. If CorEnergy changes its
fiscal year to a calendar year as anticipated, the Company's next
distribution will be for the period beginning on December 1, 2012 and
ending on March 31, 2013, with the anticipated $0.125 per share
quarterly distribution amount applicable to the period beginning
January 1, 2013.
Going forward, CorEnergy intends to report standard performance measures
utilized by REITs, including Funds from Operations ("FFO"), Adjusted
Funds from Operations ("AFFO") and Cash Available for Distributions
("CAD"). A REIT is generally required to distribute during the taxable
year an amount equal to at least 90 percent of the REIT taxable income
(determined under IRC section 857(b)(2), without regard to the deduction
for dividends paid). CorEnergy intends to adhere to this requirement in
order to qualify as a REIT.
CorEnergy intends to continue executing its strategy to be a
diversified, energy infrastructure REIT. The Company expects to acquire
assets that are diversified by asset size, geography and management team.
CorEnergy does not currently have any signed agreements or binding
letters of intent for additional acquisitions. Certain opportunities are
in preliminary stages of review, and consummation of any of these
opportunities depends on a number of factors beyond CorEnergy's control.
There can be no assurance that any of these acquisition opportunities
will result in consummated transactions. With potential transactions
ranging in value between $50 million and $200 million, CorEnergy expects
to grow over time in order to attain the desired diversification.
In order to complete possible future transactions, CorEnergy has
available to it the following funding mechanisms: issuance of common
stock or other equity securities such as convertible or preferred stock,
debt issuance, and equity partnerships, like that with Prudential
Capital Group. CorEnergy's external manager is committed to structuring
acquisitions that are accretive to CorEnergy's distributions to
The Ultra Petroleum LGS was completed in 2010 and consists of more than
150 miles of underground gathering pipelines with 107 receipt points and
four above-ground central gathering facilities that are utilized by UPL
as a method of separating water, condensate and associated natural gas
from a unified stream and subsequently selling or treating and disposing
of the separated products. UPL's non-operating working interest partners
in the Pinedale field where the LGS is located pay UPL a fee for the use
of UPL's LGS. To date, no major operational issues have been reported
with respect to the LGS.
The LGS has a current capacity of approximately 45,000 barrels per day
and average throughput of approximately 36,000 barrels per day
during the four quarters ended September 30, 2012. The underground pipes
that make up the majority of the LGS and certain other components, such
as the separators, have useful lives that extend beyond the initial term
of the lease. CorEnergy believes that the LGS can be expanded at a
relatively low incremental cost by, for example, adding additional
Most of UPL's exploration and development in the Pinedale field takes
place on land under the jurisdiction of the Bureau of Land Management
(BLM). The BLM has the authority to approve or deny oil and gas leases
or to impose environmental restrictions on leases where appropriate. The
BLM issued the Pinedale Record of Decision ("ROD") in September 2008.
Under the ROD, Ultra Petroleum gained year-round access to the Pinedale
field for drilling and completion activities in development areas,
provided that Ultra Petroleum conducts an environmental mitigation
effort, which includes the use of a liquids gathering system. This
additional access resulted in increased drilling efficiencies and
allowed for accelerated development of the field.
The 15-year triple net lease provides a minimum annual base rent of $20
million, subject to an inflation adjustment. The lease also includes an
additional participating rent based on volume growth of liquids in the
LGS. The total rent (minimum plus participating) is capped at $27.5
million annually for the initial 15-year term. At the conclusion of the
initial term, UPL's subsidiary may renew the lease for additional,
successive 5-year terms. UPL's subsidiary will operate the LGS and will
retain responsibility for maintenance and other capital expenditures
required for its operation. UPL and one of its wholly-owned subsidiaries
guarantee the lessee's obligations.
UPL was incorporated in 1979 and is an independent oil and gas company
engaged in the development, production, operation, exploration and
acquisition of oil and natural gas properties. UPL leases approximately
93,000 gross (53,000 net) acres in and around the Pinedale and Jonah
natural gas fields of the Greater Green River Basin in southwest
Wyoming. The most recently available EIA data, dated 2009, indicated
that the Pinedale field was among the top five U.S. natural gas plays
based on proved reserves. As of December 31, 2011, UPL held an
approximately 50 percent working interest in approximately 1,700
producing wells in these fields. The Pinedale and Jonah fields have
estimated natural gas reserves of over 48 Tcfe as of December 31, 2011.
As of December 31, 2011, UPL had an estimated 4.3 Tcfe of proved
reserves and 10.2 Tcfe of proved, probable and possible (3P) reserves in
the Pinedale and Jonah fields. UPL's third-party reservoir engineering
firm, Netherland, Sewell & Associates, Inc., has identified an inventory
of over 5,000 economic, future drilling locations.
UPL derives its revenues principally from the sale of its natural gas
and associated condensate production from wells operated by UPL and
others in the Greater Green River Basin. UPL is recognized as a low-cost
operator in the industry in terms of both adding and producing oil and
natural gas reserves. UPL's all-in cash costs, defined as all-in costs
excluding DD&A expenses, have consistently been lower than natural gas
prices and for the twelve month period ended September 30, 2012 were
$1.43 per Mcfe.
KeyBanc Capital Markets acted as exclusive financial advisor to
CorEnergy in connection with the acquisition.
BofA Merrill Lynch is acting as exclusive structuring advisor in
connection with CorEnergy's energy infrastructure real asset strategy.
About CorEnergy Infrastructure Trust, Inc.
CorEnergy Infrastructure Trust, Inc. (NYSE: CORR), acquires midstream
and downstream U.S. energy infrastructure assets and concurrently enters
into long-term triple net leases with energy companies. CorEnergy
intends to acquire infrastructure assets that qualify as real property
for REIT purposes. The Company's principal objective is to provide
stockholders with an attractive risk-adjusted total return, with an
emphasis on distributions and distribution growth. Formerly Tortoise
Capital Resources Corp., CorEnergy previously traded under the ticker
TTO. CorEnergy is managed by Corridor InfraTrust Management, LLC.
Corridor is an affiliate of Tortoise Capital Advisors, L.L.C., a
registered investment adviser with over $9.4 billion of assets under
management in the U.S. energy infrastructure sector as of November 30,
2012. For more information, please visit www.corridortrust.com.
About Prudential Capital Group
Prudential Capital Group has been a leading provider of private debt,
mezzanine and equity securities to companies worldwide for more than 70
years. Managing a portfolio of nearly $65 billion as of September 30,
2012, Prudential Capital offers senior debt and mezzanine capital,
leverage leases, credit tenant leases, and equipment finance to
companies worldwide. The global regional office network has locations in
Atlanta, Chicago, Dallas, Frankfurt, London, Los Angeles, Minneapolis,
Newark, N.J., New York, Paris and San Francisco. For more information,
please visit www.prudentialcapitalgroup.com.
About Ultra Petroleum Corp.
Ultra Petroleum Corp. is an independent exploration and production
company focused on developing its long-life natural gas reserves in
the Greater Green River Basin of Wyoming—the Pinedale and Jonah
fields—and is in the ongoing exploration and early development stages in
the Appalachian Basin of Pennsylvania. Ultra is listed on the New York
Stock Exchange and trades under the ticker symbol "UPL".
This press release contains certain statements that may include
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements, other than statements of historical fact, included
herein are "forward-looking statements." Although CorEnergy believes
that the expectations reflected in these forward-looking statements are
reasonable, they do involve assumptions, risks and uncertainties, and
these expectations may prove to be incorrect. Actual results could
differ materially from those anticipated in these forward-looking
statements as a result of a variety of factors, including those
discussed in CorEnergy's reports that are filed with the Securities and
Exchange Commission. You should not place undue reliance on these
forward-looking statements, which speak only as of the date of this
press release. Other than as required by law, CorEnergy does not assume
a duty to update any forward-looking statement. In particular, any
distribution paid in the future to our stockholders will depend on the
actual performance of CorEnergy, its costs of leverage and other
operating expenses and will be subject to the approval of CorEnergy's
Board of Directors and compliance with leverage covenants.
CorEnergy Infrastructure Trust, Inc.
Source: CorEnergy Infrastructure Trust, Inc.
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