By Ernest Scheyder
WILLISTON, N.D. (Reuters) - Some U.S. oil producers are trying to sell parts of their lucrative saltwater disposal businesses in a sign that cheap crude is already forcing cash-starved companies to sell assets so oil can keep flowing.
Many oil companies rely on outside contractors, which tend to be small, privately-held companies, to inject the briny byproduct of crude production hundreds or thousands feet deep into the earth, well below the water table.
But for producers which own such facilities, the high-margin business has served as a source of cost savings and steady revenue, factors that also make them appealing to yield-seeking investors in master limited partnerships (MLPs) and private equity funds.
SandRidge Energy Inc and Oasis Petroleum Inc are two publicly traded oil producers openly marketing their saltwater divisions. SandRidge is planning to raise cash by listing it as an MLP and Oasis is seeking at least a partial sale.
"The psychology of the market is pretty bad right now," said Andrew Coleman, an energy analyst at Raymond James. "Any sale of these assets gives financial visibility without having to carry the cost of the asset on their books in what could be a rocky next few months."
Putting even a part of such businesses on the block suggests some energy executives are coming under increasing pressure to part ways with good, albeit non-core, assets to ride out the crude market slump and finance core oil operations.
The SandRidge and Oasis transactions could bring each company $100 million or more at a time when capital market funding is drying up and cash is tight as crude oil trades at less than half mid-2014 levels, analysts say.
Other publicly held energy companies with notable saltwater units include Devon Energy Corp, MidStates Petroleum Co and Ferrellgas Partners LP. So far only SandRidge and Oasis have publicly discussed their spin-off plans.
One of the largest privately held saltwater disposal companies is 1804 Operating LLC, which operates primarily in North Dakota's Bakken shale formation.
Oasis Chief Executive Tommy Nusz laid out a scenario for investors last month in which the saltwater disposal business could be priced at 16-20 times its projected earnings before interest, tax, depreciation and amortization(EBITDA). That would value the whole business at $880 million or more, though it is not clear how much of the disposal operation Oasis wants to sell. Neither Oasis nor SandRidge report the breakdown between the units' in-house services and those provided to other companies.