Laredo Petroleum Inc. (NYSE: LPI) is putting its 49% ownership stake in the Midland Basin-focused Medallion Gathering & Processing LLC up for sale in a deal that could bring hundreds of millions of dollars to the company’s coffers.

Laredo said July 19 that it “initiated a process to potentially sell 100% of [its] ownership interests” in Medallion, which has been an ongoing source of A&D speculation by analysts, investors and Laredo management itself.

Kashy Harrison, a senior research analyst at Piper Jaffray, said Laredo’s announcement is a “long-awaited catalyst” with proceeds potentially being used to improve its balance sheet or increase drilling activity.

In a statement, Laredo said it couldn’t offer assurances that the Midland Basin pipeline’s potential sale would be consummated or terms of the sale.

With proposed expansions, one analyst said Medallion’s infrastructure will become a premier crude delivery system in the Permian Basin.

Proceeds from the sale could potentially be transformational for Laredo. But the value of Medallion is a tricky calculation.

A Bloomberg report suggested the sales price for Medallion could be $2.5 billion—far more than many analysts had assumed.

Harrison said Piper Jaffray valued Laredo’s 49% interest at $720 million, with an overall value for the pipeline of $1.47 billion.

Tudor, Pickering, Holt & Co. (TPH) estimates were far higher, pegging Laredo’s stake in the pipeline at $1.07 billion for a total Medallion value of $2.2 billion.

David Tameron, senior analyst at Wells Fargo Securities LLC, said Medallion’s total value was about $1.7 billion gross, according to a July 20 report.

Medallion’s expansion could be a factor in varying estimates by analysts. Medallion is adding pipelines to the system that could increase throughput by 70% in 2018. That led Richard Tullis, an analyst at Capital One Securities, to revise the value of Medallion at about $1.4 billion, or $675 million for Laredo’s share.

Medallion’s Wolfcamp Connector consists of more than 370 miles of 10-inch and 12-inch line in Mitchell, Howard, Glasscock, Reagan, Midland, and Upton counties, Texas.

In May, Medallion proposed a 16-inch Wolfcamp Expansion mainline in Howard, Glasscock, Mitchell as well as Scurry County, Texas. The Wolfcamp Expansion would run about 47 miles to the Colorado City Hub, where Medallion interconnects with several third-party carriers.

By June, Laredo closed a month-long open season to gauge interest in producers’ willingness to sign minimum 10-year transportation commitments to its Wolfcamp Connector.

Based on binding capacity agreements received during the open season, Medallion’s Wolfcamp Expansion will increase capacity to 200,000 barrels per day (bbl/d) from 105,000 bbl/d. The Wolfcamp Connector will increase capacity of the existing Howard Lateral to 85,000 bbl/d from 60,000 bbl/d.

The Wolfcamp Expansion is expected to commence partial commercial operations in third-quarter 2017 and full commercial operations in fourth-quarter 2017.

Proceeds from the sale are unlikely to be used by Laredo for large acquisitions.

Randy Foutch, Laredo’s chairman and CEO, told Hart Energy in November that the company’s 127,000 net acres were purchased for $1,000 per acre or less.

“We stopped buying when we couldn’t block it up appropriately,” he said.

Laredo operates high-efficiency production corridors and combines infrastructure with extremely long laterals—more than 13,000 ft—to maximize value.

“We knew when we bought our first acreage in the Midland Basin in early [2009 and 2010] that it needed to be blocked up,” Foutch said. “We bought acreage that had no production on it … that was blocked up cause we had this view of how this acreage was going to be developed.”

Foutch said elevated acreage prices have resulted from the difference between “people who have good acreage, good rocks and the people who don’t.”

Longer lateral lengths continue to be the driver for Laredo. The company has made bolt-ons, including its purchase of acreage in Glasscock, Howard and Reagan during the first quarter for $13 million.

Generally, Laredo is unwilling to make an acquisition unless the acreage is superior to what it already owns or has a strategic benefit.

“We just haven’t seen a lot of acreage that we think fits that criteria,” he said.

Darren Barbee can be reached at dbarbee@hartenergy.com.