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NiSource in Talks With Potential Utica Shale JV Partner

NiSource Midstream Services (NMS) is in "advanced discussions with a producer counterparty" about a potential joint venture (JV) to focus on gathering, processing and transporting in eastern Ohio's Utica Shale, NiSource Inc. officials said Tuesday.

While the company didn't say if the JV would target oil or natural gas, a NiSource spokesman told NGI's Shale Daily that the JV would operate within the oily window of the Utica Shale. The JV "would optimize NMS' minerals position in this area, which could include significant downstream infrastructure investment opportunities," according to NiSource.

The potential JV partner "is widely recognized [and] widely respected," but was not named. An announcement on the JV could come "in a month or so," CEO Robert Skaggs Jr. said during a conference call with analysts.

"The concept would be that we would contribute roughly 15,000 acres that are associated with our Brinker storage field to the counterparty's acreage position. In total, the JV joint acreage would approximate 100,000 acres, give or take. We would participate in the development. It would be a passive participation in the development, no cash out of hand, no cash to us. And then the JV would execute against all the downstream construction requirements."

Negotiations are down to "blocking and tackling and closing the deal out," Skaggs said.

"I wouldn't characterize anything as a material, major issue at this point...both of us are being deliberate. Obviously, it's a significant marriage, it's a potential model for what we're going to do throughout the Utica, so we're just being deliberate and prudent as we go through the process, and so are they.

NiSource Midstream and Minerals Group (NGT&S) has said it plans to develop a wet and dry gas gathering system to serve the Utica Shale in eastern Ohio (see Shale Daily, March 1). The project would include construction of a 90-mile large-diameter gathering system utilizing Columbia Gas Transmission's existing right of way along its north-south-running V-100 and V-138 systems, and is expected to provide an initial transportation and processing capacity of 200 MMcf/d with expansion capabilities. In conjunction with the gathering project, NGT&S has purchased a 200 MMcf/d cryogenic gas liquids processing plant to be delivered in July. NGT&S said it would also construct a dry gas line originating from the tailgate of the processing plant that would gather additional dry gas produced in the Utica.

NGT&S recently completed open seasons on two expansions of its Columbia Gas Transmission and Columbia Gulf Transmission systems which each have projected in-service dates in late 2014. Two shippers have signed binding long term precedent agreements for the $220 million West Side Expansion, which would transport approximately 500,000 Dth/d of Marcellus production originating in southwest Pennsylvania and north-central West Virginia to Gulf Coast markets, NiSource said. Negotiations are currently underway with customers for binding transportation agreements for the East Side Expansion Project, which would connect about 500,000 Dth/d of northern Pennsylvania Marcellus production with growing mid-Atlantic markets. The East Side Expansion Project is expected to cost about the same or possibly slightly more than the West Side Expansion, Skaggs said.

Separately, in early February NGT&S said it was in the latter stages of developing a 90-mile pipeline in western Pennsylvania to support increased Marcellus Shale gas production. The $145 million Pennsylvania Marcellus Pipeline Project project is expected to have initial capacity of about 300,000 Dth/d with interconnects to multiple interstate pipelines when it is placed in service late this year (see Shale Daily, Feb. 3).

NiSource reported net operating earnings of $214.5 million (76 cents/share) in 1Q2012, compared with $206.6 million (74 cents) in 1Q2011. NGT&S reported operating earnings of $138.6 million in 1Q2012, compared with $118.4 million in 1Q2011. NiSource Gas Distribution reported operating earnings of $246.5 million for 1Q2012, compared with $237.0 million in 1Q2011. NiSource reaffirmed its 2012 earnings guidance of $1.40-$1.50/share.

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