“Westmoreland has long felt that our long-term cost-plus and cost-protected contracts make us ideally suited for a MLP structure,” said Keith E. Alessi, CEO, Westmoreland. “We have explored various ways to take advantage of the benefits of a MLP. The Oxford transactions provide us with an expeditious path to enter the MLP space and immediately recognize the advantages of owning a general partner. Additionally, the existing Oxford business has many of the characteristics of Westmoreland’s business and we feel that we are well positioned to partner with its customers.”
“Since early in 2012, we have been pursuing various strategic alternatives in an effort to bring increased value to our unit holders,” said Oxford President and CEO Charles C. Ungurean. “This transaction represents the culmination of that effort and we believe that this represents a great opportunity for our company, unit holders, employees and customers, as well as providing a MLP vehicle for Westmoreland and its shareholders.”
The boards both companies have unanimously approved the transactions.
The acquisition of Oxford GP by Westmoreland transforms Oxford into a sponsored MLP with a parent that holds a stable of potential drop-down assets.
As part of the transactions, Oxford will become Westmoreland Resource Partners LP (Westmoreland LP) and Oxford GP will become Westmoreland Resources GP LLC (Westmoreland GP). Westmoreland will contribute to Westmoreland LP certain fee simple interests in coal reserves and related surface lands at its Kemmerer mine in Lincoln County, Wyoming, in exchange for 4.5125 million post-reverse split common units of Westmoreland LP, resulting in Westmoreland holding a unit ownership of 77% of Westmoreland LP. Westmoreland LP will concurrently enter into a coal mining lease with Westmoreland for these coal reserves, and Westmoreland will pay Westmoreland LP a per-ton royalty as it mines the leased reserves. The Kemmerer reserves are expected to generate approximately $5.8 million in average annual cash flow for Westmoreland LP from 2015 to 2018.
Westmoreland intends to drop down additional assets in the future that are expected to be accretive to Westmoreland LP, although it is not obligated to do so.