EV Energy Partners LP (EVEP) and Total E&P USA said Tuesday that they have agreed to sell their interests in Cardinal Gas Services LLC for a combined sale price of $562 million in a deal that is expected to close next month.
The companies, which have a joint venture along with Chesapeake Energy Corp. to develop their assets in Ohio's Utica Shale, agreed to sell their interests in Cardinal to E1 Corp. and a consortium led by Samchully Corp., both located in South Korea, pending approval from regulators and Cardinal's other partner, Access Midstream Partners LP.
EVEP said it had signed an agreement to divest its 9% interest in Cardinal for $162 million, while Total signed an agreement to sell its 25% interest for $400 million.
"The sale of this non-strategic asset reflects the group's active portfolio management and enables us to unlock value while continuing with the development of our resources in the Utica basin as planned," said Total’s Olivier de Langavant, senior vice president for strategy and business development.
EVEP and Chesapeake are among the Utica's top operators, with each holding nearly one million net acres in some of the play's most prolific counties. Cardinal was established in 2011 to provide low-pressure gathering and compression of wet gas from the JV's acreage in eastern Ohio. According to EVEP’s latest investor presentation, the system has more than 400 wells connected to it and has an average daily throughput of more than 600 MMcf/d.
At the end of last year, according to an annual report filed by EVEP with the U.S. Securities and Exchange Commission, the company alone had invested $221 million into the Cardinal System and the Utica East Ohio processing facility located in Columbiana, Carroll and Harrison counties, OH, which it has a 21% interest in along with Access and M3 Midstream LLC (see Shale Daily, May 12).
EVEP management had indicated in recent quarters that a sale of the company’s interests in Cardinal was a possibility. During its 2Q2014 earnings call, EVEP Executive Chairman John Walker said that volumes on the system were running behind due to compression constraints. At the end of the quarter, throughput on the system was at roughly 630 MMcf/d, up from 1Q2014, but still trailing the 800 MMcf/d the company was aiming for by year's end (see Shale Daily, Aug. 13).
“We’ve made a couple investments in midstream for our Utica acreage,” EVEP CFO Mike Mercer told NGI’s Shale Daily. “But our long-term strategy and focus is really on our core competence, and that’s owning and managing upstream oil and gas properties. This was really an opportunity to redeploy those midstream investments into our upstream assets. We were not trying to create a longer-term midstream segment. This opportunity came about because of our Utica position.”
With the sale of its Cardinal interests, Total said it will remain an active participant in its Utica JV. EVEP said it would use the proceeds of the sale to repay outstanding debt under its revolving credit facility.