CorEnergy Closes Sale of MoGas and Omega Pipeline Systems to Spire

Rhea-AI Summary

CorEnergy Infrastructure Trust, Inc. announced the sale of its MoGas and Omega pipeline systems to Spire Midstream for $175 million. The transaction resulted in net proceeds of approximately $165 million after taxes and transaction-related costs. The sale allows CorEnergy to significantly de-lever its balance sheet, but the company is currently out of compliance with the NYSE minimum share price requirement and at risk of delisting. The company is evaluating its strategic alternatives regarding its current capital structure.

Positive

• Sale of MoGas and Omega pipeline systems for $175 million
• Net proceeds of approximately $165 million after taxes and transaction-related costs
• Significant de-leveraging of the balance sheet

Negative

• Out of compliance with the NYSE minimum share price requirement
• At risk of delisting from NYSE
• Cash flow deficits in Crimson utility due to underpriced pipeline tariffs

Insights

Financial Analyst

The divestiture of the MoGas and Omega pipeline systems by CorEnergy to Spire Midstream for $175 million represents a strategic move to streamline operations and improve the company's financial health. This all-cash transaction, resulting in net proceeds of approximately $165 million, enables CorEnergy to repay significant debt, specifically the $109 million Crimson Pipeline credit facility, thereby reducing leverage on its balance sheet. This development is crucial for stakeholders as it directly affects the company's financial stability and debt profile.

However, the context of this transaction is critical. CorEnergy's mention of non-compliance with the NYSE minimum share price requirement and the risk of delisting poses a significant threat to investor confidence. Delisting can often result in reduced liquidity and investor interest, potentially leading to a decline in share price. The obligation to repurchase $118 million of convertible senior notes, should the delisting occur, is a material financial risk, given the company's admission of insufficient resources to meet this obligation.

Furthermore, the sale's proceeds are earmarked for maintaining liquidity and operations at the Crimson utility, which is facing cash flow deficits. The expectation of retroactive rate increases is a positive note, but this is contingent upon regulatory approval, introducing an element of uncertainty into the company's revenue projections.

Energy Sector Analyst

The transaction between CorEnergy and Spire Midstream has significant implications within the energy infrastructure sector. The MoGas System is a critical asset for natural gas transmission and distribution in Missouri and Illinois and its acquisition by Spire Midstream could enhance Spire's market position and service capabilities in these regions.

The mention of corporate cost reductions and potential asset write-downs by CorEnergy reflects broader industry challenges, such as regulatory changes and volume declines. Major oil production companies have faced similar issues, leading to write-downs of reserves, particularly in California. This indicates a trend of energy companies adjusting to a changing regulatory landscape and market conditions, which could affect asset valuations and long-term profitability.

For CorEnergy, the potential write-downs of pipeline assets due to shorter economic lives imply a re-evaluation of asset performance and future revenue streams. This could lead to adjustments in the company's strategic planning and capital allocation. Investors and industry stakeholders should monitor these developments closely, as they could signal shifts in the market dynamics and competitive positioning within the sector.

Legal Expert

The legal implications of CorEnergy's transaction and its current financial condition are multifaceted. Firstly, the sale of the MoGas and Omega systems and the repayment of the Crimson Pipeline credit facility likely required complex legal negotiations and due diligence, underscoring the importance of effective legal counsel in such transactions, as provided by K&L Gates.

Secondly, the potential NYSE delisting and subsequent repurchase of convertible senior notes highlight the intersection of corporate finance and securities law. The company's current capital structure evaluation and its strategic alternatives could involve legal considerations related to corporate restructuring, debt refinancing, or even bankruptcy proceedings, should they be unable to remedy their financial non-compliance.

Lastly, the regulatory aspect of the utility rate increases sought by CorEnergy introduces legal complexity, as these increases are subject to approval by regulatory bodies. The outcome of these proceedings will have a direct impact on the company's cash flow and financial projections. Additionally, the retroactivity of the rate increases, if granted, will have legal precedents and could influence future regulatory requests by other utilities.

Provides Update on Financial Condition

KANSAS CITY, Mo.--(BUSINESS WIRE)-- CorEnergy Infrastructure Trust, Inc. (OTC: CORR, CORRL) ("CorEnergy" or the "Company") today closed the sale of its MoGas and Omega pipeline systems (together, the “MoGas System”) to Spire Midstream, a subsidiary of Spire Inc. (NYSE: SR). The MoGas System is an interstate natural gas transmission and distribution system providing service to markets in Missouri and Illinois.

Transaction Highlights

• All-cash transaction for $175 million, plus working capital adjustments, resulting in net proceeds of approximately $165 million after taxes and transaction-related costs
• At closing, CorEnergy repaid and canceled the Crimson Pipeline credit facility, for a total of $109 million
• Transaction results in Crimson Pipeline as sole remaining operation of CorEnergy

Dave Schulte, Chairman and Chief Executive Officer of CorEnergy, said: “We want to thank our dedicated MoGas and Omega associates, who will continue supporting Spire to provide safe transportation of critical supplies of natural gas to customers in Missouri. These companies were the last remaining legacy operations from our predecessor corporation and were included in our groundbreaking qualification for REIT status. Our stockholders realized significant benefit from our ownership of these assets over the years, and we are confident that Spire is the right owner for them moving forward.”

Commenting on CorEnergy’s financial condition, President and CFO Robert Waldron said: “The sale of our MoGas and Omega systems allows us to significantly de-lever our balance sheet. However, as we have previously disclosed, we are currently out of compliance with the NYSE minimum share price requirement and are at risk of the NYSE delisting our common stock. While we are appealing the delisting notice, there is no assurance that we will be successful. If this situation is not remedied, it will lead to an obligation to repurchase $118 million of our convertible senior notes at par value in the near future, and we do not have the resources to comply. The company is evaluating its strategic alternatives regarding its current capital structure.”

Regarding corporate operations, Mr. Waldron continued: “Our Crimson utility is running cash flow deficits due to dramatically underpriced pipeline tariffs that are the result of unprecedented volume declines and power and maintenance cost increases. The cash generated from the sale of MoGas and Omega will be sufficient for us to maintain Crimson’s liquidity and safe and reliable operations until the rate increases for which we have applied take effect. We have requested and expect that these rate increases will be retroactive to our application date.”

Mr. Waldron added: “As previously communicated, we plan to undertake corporate cost reductions commensurate with our smaller operating footprint and may take charges for those activities. Major oil production companies have recently announced major write-downs of their reserves in the state of California resulting from government policies reducing the economic value of their production. These same regulations have adversely affected volumes transported on our pipelines, and therefore, their economic life. We are evaluating the Crimson business for possible write-downs related to shorter useful lives of pipeline assets, and will provide an update in due course.”

CorEnergy intends to file pro forma financial statements giving effect to the sale of MoGas and Omega on Form 8-K.

Evercore acted as the company’s financial advisor while K&L Gates served as legal counsel.

About CorEnergy Infrastructure Trust, Inc.

CorEnergy Infrastructure Trust, Inc. (OTC: CORR, CORRL) is a real estate investment trust that owns and operates regulated crude oil pipelines and associated rights-of-way. For more information, please visit corenergy.reit.

Forward-Looking Statements

With the exception of historical information, certain statements contained in this press release 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, our ability to execute on our business strategy of restoring our cost of services and the expected results of tariff increase requests. 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 that we might not receive our requested tariff increases, we might have further cost increases and volume reductions beyond those projected in our tariff requests and those additional factors 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.

Source: CorEnergy Infrastructure Trust, Inc.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240119912512/en/

CorEnergy Infrastructure Trust, Inc.

Investor Relations

Jeff Teeven or Matt Kreps

info@corenergy.reit

Source: CorEnergy Infrastructure Trust, Inc.

FAQ

What did CorEnergy sell to Spire Midstream?

CorEnergy sold its MoGas and Omega pipeline systems to Spire Midstream for $175 million.

What are the net proceeds of the sale after taxes and transaction-related costs?

The net proceeds of the sale are approximately $165 million after taxes and transaction-related costs.

What is the current financial condition of CorEnergy?

CorEnergy is currently out of compliance with the NYSE minimum share price requirement and is at risk of delisting.

What is the company evaluating regarding its current capital structure?

The company is evaluating its strategic alternatives regarding its current capital structure.

Who served as the company's financial advisor for the sale of MoGas and Omega?

Evercore acted as the company's financial advisor for the sale, while K&L Gates served as legal counsel.