Midstream assets seemingly can do no wrong for E&Ps in 2015, with Tallgrass Energy Partners LP (NYSE: TEP) agreeing to buy Whiting Petroleum Corp.’s (NYSE: WLL) Redtail infrastructure for $75 million.

Tallgrass said its subsidiary, BNN Water Solutions, closed on a $75 million acquisition of Whiting’s Redtail saltwater disposal and fresh water transportation and storage system in Weld County, Colo.

The acquisition includes a freshwater delivery and storage system and a produced water gathering and disposal system. Cumulatively, the system consists of 62 miles of pipeline and associated freshwater ponds and disposal wells.

With the deal, Whiting has divested $475 million worth of assets in 2015. At the beginning of the year, the company said it had identified up to $1 billion in planned asset sales.

Several E&P companies have divested midstream assets in 2015 to raise capital, and the midstream A&D market has been hot, with year-to-date transactions worth $175 billion compared to $51 billion in 2014.

While the Redtail asset sale is not a game changer, it represents 7-10% of Whiting’s 2016 capital budget, said David Tameron, senior analyst with Wells Fargo Securities.

Investors continue to wait for bigger asset packages from Whiting, including its Bakken midstream assets and, longer term, its North Ward Estes leasehold in the Permian Basin, Tameron said.

The North Ward Estes asset’s production was 9,375 barrels of oil equivalent per day (boe/d) in third-quarter 2015.

“Combined we believe those two assets could generate another $800 million,” Tameron said. “While asset sales aren’t a necessity for Whiting, we view continued divestment as a potential catalyst for the stock.”

Whiting’s agreement with Tallgrass gives it a five-year freshwater service contract and a nine-year gathering and disposal contract with annual minimum volume commitments within Whiting’s currently expected volumes.

Whiting also dedicated about 148,000 acres to the Redtail system. Tallgrass said it expects the acquisition to be immediately accretive to unit holders.

Tallgrass COO Bill Moler said the Whiting acquisition will serve as a natural expansion of its water services business and help producers reduce water costs.

“Tallgrass intends to continue growing its water services business in the Rockies, Permian, Eagle Ford and other production areas to help companies that are seeking cost reductions in fresh water, disposal, recycling and general water management,” he said.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.

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