EQT Midstream Partners LP agreed to pay up to $650 million for Appalachian-focused Sunrise Partners LP and a new transportation agreement, the company said Monday.
The midstreamer, which is buying the assets from parent EQT Corp., provides services through two primary assets: Equitrans Transmission and Storage System, and Equitrans Gathering System. It operates a 700-mile, regulated interstate pipeline system and more than 2,000 miles of low-pressure gathering lines.
The Sunrise purchase would add 41.5 miles of 24-inch diameter pipeline that parallels and interconnects with a segment of the partnership's transmission and storage system that runs through Wetzel County, WV, to Greene County, PA. It also includes the expanding Jefferson compressor station in Greene County and an interconnect with Texas Eastern pipeline.
Sunrise has existing throughput capacity of about 400 billion Btu/d, all subscribed under firm transmission contracts with a weighted-average remaining contract life based on contracted revenues through last month of about 10 years. Marketing affiliate EQT Energy LLC now has a firm contract for 305 billion Btu/d of capacity, and 95 billion Btu/d has been contracted with third parties. The contracts provide $44.3 million in annual firm reservation revenue and up to $700,000 of annual firm usage revenue, if fully utilized, the company said.
The Jefferson station expansion would provide an additional 550 billion Btu/d of capacity. The partnership plans to invest $30 million for the fully subscribed expansion, which is set for service by September 2014. EQT Energy entered into a precedent agreement for 295 billion Btu/d of firm capacity over a 10-year term, beginning when the expansion is placed into service. The expansion would provide about $26.9 million of annual firm reservation revenue.
Sunrise also has a 20-year third-party agreement for firm transportation capacity related to the Jefferson expansion. The precedent agreement is for 252 billion Btu/d of capacity every year from Nov. 1 through March 31, and 62 billion Btu/d every year from April 1 through Oct. 31. The agreement begins April 1, resulting in $13 million of annual firm reservation revenue and up to $1 million of annual firm usage revenue, if fully utilized, EQT Midstream said.
If the transportation agreement becomes effective by Dec. 31, 2014, the partnership would pay EQT $110 million.
More than half of the natural gas pipeline projects that entered service last year were in the Northeast, Dominion Transmission Inc.'s Appalachian Gateway Project and Sunrise, which both move natural gas from the Marcellus Shale to northeastern markets, according to the Energy Information Administration (see Shale Daily, March 26). Sunrise was cleared for service a year ago (see Shale Daily, July 23, 2012).
EQT Midstream now operates the Sunrise assets for EQT as part of its system under a lease agreement and, as a result, revenues and expenses are included in the partnership's financial statements. However, the monthly lease payment to EQT offsets the impact on the partnership's distributable cash flow. Effective with the close of the Sunrise transaction, the lease agreement would terminate.
Under the terms of the purchase, the midstreamer is paying EQT $507.5 million cash and $32.5 million through common and general partners units, as well as the possible $110 million for the new transportation agreement.
Once the Jefferson expansion is up and running, the revenue generated under contracts is expected to be about $84 million/year. If fully utilized, revenues generated by firm usage may add up to $1.7 million/year. The partnership expects ongoing operating expenses for the Sunrise assets to be $5-7 million annually.