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- Today, SRE announced the sale of its remaining 25% interest in REX for $440MM to Tallgrass Development LP (Tallgrass): Despite the $27MM loss, we believe that the sale of SRE’s remaining interest in Rockies Express Pipeline (REX) is the correct decision, particularly given the plethora of opportunities SRE has to invest this capital for far better returns than what it would be able to extract from REX. Tallgrass would increase its interest in REX to 75% from 50%, while Philipps 66 would retain its 25% interest. The transaction is expected to close in 2Q2016.
- SRE also announced that it would release the remaining uncontracted capacity: This is expected to result in a charge to earnings of some $100MM to $120MM in 2Q2016. This charge represents the acceleration of losses that SRE would have incurred anyway through November 2019 when the existing contract term is scheduled to expire.
No effect on 2016 guidance: