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First Reserve, Private Producer to Build Marcellus Infrastructure

Energy banker First Reserve Corp. on Tuesday said it has created a joint venture (JV) with Appalachian operator Energy Corp. of America (ECA) initially to build natural gas gathering systems in the Marcellus Shale.

Through the JV, in which First Reserve would provide an equity commitment of $100 million from its Energy Infrastructure Fund, the investment firm would own a half stake in two newly constructed gathering systems in Pennsylvania's Greene and Clearfield counties. The JV would operate under long-term contracts with a fixed take-or-pay structure.

"We continue to see significant infrastructure investment opportunities in the Marcellus Shale," said First Reserve Managing Director Mark Florian. "Given the volume of exploration and production [E&P] activity in the region, these systems are ideally positioned to provide E&P operators with access to a high-quality midstream infrastructure."

First Reserve makes both private equity and infrastructure investments throughout the energy value chain. For 28 years it has invested only in the global energy industry. Its most recent private equity fund closed in 2009 at about $9 billion and its most recent infrastructure fund closed this year at $1.2 billion. In addition to the initial investment, the JV plans to explore opportunities to develop new or expand existing gathering systems in the region.

The partnership will "accelerate Pennsylvania infrastructure development and provide natural gas transportation capacity for all the operators in the area," said ECA CEO John Mork.

Privately held ECA, headquartered in Denver, has been an E&P operator in the Appalachian Basin for 45 years. It began testing wells in the Marcellus play in the late 1970s in partnership with the Department of Energy. Today it has more than 5,200 producing wells, 5,000 miles of pipeline and an aggregate leasehold position of one million acres in the basin from New York to Tennessee.

ECA estimates that it has more than 10,000 drilling locations in the basin, with an estimated 15 Tcf-plus of resource potential and more than 400 Bcf of proved reserves. The company said it has the capacity to transport more than 55 MMcf/d in the region through multiple pipeline systems. In the past five years ECA has drilled as many as 100 wells a year across the region and it has up to six active drilling rigs operating at one time.

Although not considered one of the big players in the Appalachian Basin, ECA has made a name for itself by promoting environmental standards in the Marcellus Shale region. In addition to voluntarily disclosing chemical additives in its hydraulic fracturing process, the producer is said to have been one of the first E&Ps in the region to use a drilling rig system fueled by a 50/50 blend of diesel fuel blended with natural gas being drilled on site. The Bi-Fuel System, developed by Helmerich and Payne, reduces the amount of fuel needed to run a drilling rig by about 70%, as well as reducing air emissions.

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