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Summit Midstream Spends $460M on Bakken, Marcellus Gathering

Dallas-based Summit Midstream Partners LP (SMLP) is buying two shale gas gathering systems -- one in the Bakken and the other in the Marcellus -- in two deals worth a combined $460 million. The Marcellus transaction marks the company's entry into the play.

SMLP closed and funded a $250 million dropdown acquisition of Bakken-focused Bison Midstream LLC from Summit Investments. Bison gathers associated gas in Mountrail and Burke counties in North Dakota and consists of 300 miles of low- and high-pressure gathering pipelines and six compressor stations with 5,950 hp. Capacity is being expanded from 20 MMcf/d to 30 MMcf/d with additional compression, which is expected to be completed by the end of 2013.

Separately on Tuesday, SMLP struck agreements with an affiliate of MarkWest Energy Partners LP for SMLP unit Mountaineer Midstream Co. LLC to acquire for $210 million in cash certain gas gathering and compression assets in the liquids-rich window of the Marcellus Shale, primarily in Doddridge County, WV. The transaction is expected to close by June 30.

"The acquisition of midstream assets in the Bakken and Marcellus shale plays, two of the most prolific unconventional resource basins in North America, will provide SMLP with larger scale to execute its growth strategy as well as greater geographic and customer diversification," said SMLP CEO Steve Newby.

Early this year, Summit Investments agreed to acquire Bear Tracker Energy LLC, which is focused on oil and natural gas in North Dakota and Colorado, for $513 million (see Shale Daily, Jan. 11).

Bison is SMLP's first dropdown acquisition from Summit Investments. It and the Marcellus gathering assets being acquired are underpinned by long-term contracts with leading producers in their respective plays, Newby said.

"The Mountaineer acquisition will represent SMLP's initial entry into the Marcellus Shale, one of the largest, most active and prolific basins in North America," he said. "We are excited about establishing a footprint in this world-class basin and beginning a strategic relationship with MarkWest."

The Mountaineer system consists of more than 40 miles of newly constructed, high-pressure gathering pipelines, certain rights-of-way associated with the pipeline, and two compressor stations with more than 21,000 hp. "This rich-gas gathering and compression system serves as a critical inlet to MarkWest's world-class Sherwood Processing Complex, which is currently being expanded from 400 MMcf/d to 800 MMcf/d," Summit Midstream said. Mountaineer can deliver 550 MMcf/d to the Sherwood complex and is underpinned by a long-term, fee-based contract with an affiliate of Antero Resources Inc.

Antero, the anchor producer at Sherwood, has more than 312,000 net acres in the southwestern core of the Marcellus (see Shale Daily, May 14). In northern West Virginia, Antero has 14 drilling rigs running and has access to 400 MMcf/d of fully dedicated cryogenic processing capacity at Sherwood.

During a conference call to discuss the acquisitions, Newby said the Mountaineer assets put Summit Midstream in "as good an area as there is in" the Marcellus that is liquids-rich and "very big" from the standpoint of estimated ultimate recoveries.

Summit Midstream expects its volumes to ramp up on the Mountaineer system as capacity at the Sherwood plant ramps up, Newby said. Operations at the first phase of the plant went online last November (see Shale Daily, Nov. 1, 2012). Newby added that the transaction with MarkWest is the beginning of a long-term relationship that combines Summit Midstream's gathering expertise with MarkWest's downstream and processing capabilities.

"The anchor customers on both [acquired gathering] systems have provided either minimum volume commitments [MVC] or minimum revenue commitments," Newby said. "We believe that these acquisitions will be immediately accretive to our distributable cash flow on a per unit basis and will deliver significant value to our unitholders over the long-term."

Overall, SMLP has more than 1 million contractually dedicated acres in some of the highest-growth unconventional basins in North America, Newby told analysts. Its weighted-average remaining contract life is 10.6 years. Remaining MVCs total 3.4 Tcf and run through 2026. MVCs average 928 MMcf/d in 2013 and 950 MMcf/d through 2017.

SMLP said it expects the acquisitions to be immediately accretive to distributable cash flow on a per-unit basis.

Summit Midstream Holdings LLC, a unit of SMLP, has exercised a $50 million accordion feature on its revolving credit facility to increase capacity from $550 million to $600 million. The transactions will be financed under the expanded credit facility and the issuance of $150 million of common units and general partner interests in SMLP to wholly-owned subsidiaries of Summit Midstream Partners, LLC (Summit Investments). Summit Midstream Holdings and Summit Midstream Finance Corp. said they intend to offer $300 million of senior unsecured notes due 2021. Proceeds would be used to repay a portion of outstanding borrowings under the revolving credit facility.

SMLP revised 2013 guidance for adjusted earnings before interest, taxes, depreciation and amortization from $115 million to $125 million to a new range of $140 million to $150 million, reflecting the addition of seven months of operations from the recently acquired assets.

MarkWest said deal proceeds would provide it with flexibility to fund growth capital investments associated with more than 18 previously announced major midstream infrastructure projects primarily in the Marcellus and Utica shales (see Shale Daily, June 3; May 13). By the end of 2014, MarkWest expects to have more than 4 Bcf/d of processing capacity and 275,000 b/d of fractionation capacity "in the heart of two of America's most prolific shale plays."

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