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Blue Racer Builds Utica Midstream Options

Dominion and Caiman Energy II LLC last week formed a $1.5 billion joint venture (JV), Blue Racer Midstream LLC, to open up more midstream options for natural gas producers operating in the Utica Shale in Ohio and portions of Pennsylvania.

Blue Racer is to be an equal partnership of Dominion and Caiman Energy II, with Dominion providing midstream properties and Caiman throwing in private equity capital. Williams Partners LP bought Caiman Energy's midstream business earlier this year and formed Caiman Energy II with investors EnCap Flatrock Midstream and Highstar Capital (see NGI, March 26).

"The Utica Shale has enormous potential to provide jobs and revenues for the local Ohio economy," said Dominion CEO Thomas F. Farrell II. "Because the portion of the Utica Shale targeted today produces a rich gas stream, gathering and processing capacity must be developed so that the natural gas and valuable natural gas liquids can be separated and sold. Caiman Energy brings to the joint venture a proven track record in developing one-stop midstream shopping for producers."

Farrell had said in October that Dominion was readying several midstream projects in the Utica (see NGI, Oct. 29). The Blue Racer, he said, "allows Dominion to capture the value of our assets in the Utica region and supports our 5-6% annual operating earnings per share growth targets, while at the same time accelerating Utica midstream capital spending by up to $800 million. This additional flexibility will be valuable as we proceed with our growth plan."

Caiman CEO Jack Lafield said Dominion offered "well positioned assets and experienced operations...With our experience in developing midstream businesses and our $800 million in equity commitments for the joint venture, we can quickly leverage Dominion's assets, expertise and relationships to meet producers' needs as they fully develop their natural gas acreage."

Dominion facilities to be contributed to the JV include Dominion East Ohio's existing gas gathering network, along with other portions of its gathering system as more lines are converted to rich-gas gathering operations. With investment, the JV's gathering pipeline system could be expanded to transport "at least" 2 Bcf/d. The JV also includes Dominion's Natrium Extraction Plant and related facilities, now are being built in Marshall County, WV, as well as the Dominion Transmission pipeline to connect Natrium to the Dominion East Ohio gathering system. Natrium initially is to process 200 MMcf/d and fractionate 36,000 b/d of liquids.

Williams Partners, with a 47.5% interest in Caiman Energy II, plans to contribute through 2014 about $380 million to finance Blue Racer. EnCap, with a 35.6% stake, is expected to contribute up to $285 million, while Highstar, which holds a 11.5% stake, is contributing up to $95 million. Management owns the remaining 4% of Caiman Energy II.

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