Utility takes big loss on $1.5 billion sale of gas pipeline network that serves Colorado

A utility that bought a 2,160-mile natural gas pipeline network serving northwest Colorado, Wyoming and Utah early this year for $1.9 billion is selling it already, unloading it at a loss of up to $425 million.

Southwest Gas Holdings Inc. (NYSE: SWX) is selling the MountainWest Pipelines network, what had previously been called the Dominion Questar and Overthrust pipelines, to Tulsa, Oklahoma-based pipeline giant The Williams Companies Inc. (NYSE: WMB) for $1.5 billion in value, subject to some future adjustments, the companies said.

Southwest Gas plans to use the $1.1 billion proceeds from the transaction to pay off a term loan it took out when it acquired the pipeline network from Richmond, Virginia-based Dominion Energy Inc. (NYSE: D).

MountainWest Pipelines encompasses interstate natural gas pipeline systems and 56 billion cubic feet of natural gas storage, including Clay Basin, the largest underground storage reservoir in the Rocky Mountain region.

William’s purchase is expected to close in 2023 after regulatory approvals and a federal antitrust review.

Southwest Gas’ loss on the sale will range between $350 million and $425 million after tax implications are factored in and the transaction adjustments are finalized, the company said.

Activist investor Carl Icahn had urged Southwest Gas not to buy the pipeline network last year, arguing the company was overpaying and should not be buying the assets.

Southwest Gas initially struck the deal to buy the pipelines from Dominion Energy in October, and the transaction closed in January over the objections of activist investor Carl Icahn.

Southwest Gas expects the MountainWest Pipeline business to generate $250 million to $255 million in revenue for 2022.

The pipelines transport natural gas from wells in the Piceance Basin of northwest Colorado and from areas in Wyoming and Utah. The network also connects to the Overthrust pipeline in southwest Wyoming, which links the multi-state Rockies Express Pipeline to other regional pipelines in the Rockies.

MountainWest Pipelines’ 50% ownership in interest in the White River Hub near Meeker, Colorado, where six interstate pipeline systems connect and a major plant processes natural gas.

Together, the pipelines supply natural gas for use in the growing Salt Lake City and northern Utah region and transport gas elsewhere across the Rocky Mountains.

Buying the pipelines was meant to diversify Southwest Gas’ utility business and add near-term positive cash flow while positioning it for longer-term strategic benefits, said John Hester, Southwest Gas Holdings' president and CEO, at the time.

Hester was replaced in May, ending eight years as Southwest Gas’ CEO, as part of the company’s settlement agreement with Icahn.

The acquisition of MountainWest Pipelines adds to Williams’ existing presence in Colorado and surrounding states.

Williams operates more than 30,000 miles of pipelines and gathering systems in 25 states. It owns oil and gas transmission pipelines that service the Denver-Julebsurg Basin oilfields north of the Denver metro area as well as regional transmission pipelines that cross into northwestern Colorado near the MountainWest network.

William also runs pipelines that bisect southern Wyoming’s natural gas fields and carry natural gas from the Wyoming, Colorado and northern Utah regions to the Pacific Northwest.

Southwest Gas also announced Thursday that it plans to spin off its energy transition and infrastructure services business, called Centuri, into a new company. The spinoff will return Southwest Gas to its core business — a steadily growing, fully regulated natural gas utility serving parts of Nevada, Arizona and California.