Quicksilver Resources Inc. and Kohlberg Kravis Roberts & Co. LP (KKR) said Tuesday they plan to jointly construct and operate natural gas midstream services to support producers operating in Canada's Horn River Basin.

Fort Worth, TX-based Quicksilver, which would operate the facilities, agreed to dedicate current and future production from its Horn River acreage to the partnership. It also contributed an existing 20-mile, 20-inch gathering line and compression facilities, as well as 10-year contracts for gas deliveries into those facilities to create the joint venture. KKR paid $125 million to Quicksilver in exchange for a half-stake.

"With its well established and versatile energy business, KKR is an ideal partner in creating a low-cost and reliable solution for processing and transporting natural gas produced from the Horn River Basin for Quicksilver and other producers," said Quicksilver CEO Toby Darden. "It will facilitate the sale of natural gas to multiple markets in North America and ultimately to export markets in Asia. Moreover, the partnership structure will further strengthen our financial flexibility while reducing our expected capital requirements over the next several years."

Under the agreement KKR would carry Quicksilver's future development costs for the initial treating facility in exchange for preferential distributions to KKR. The facility is expected to lower Quicksilver's costs to get its produced gas to market by about 80 cents/Mcf, the company said.

The area of mutual interest established for the midstream business covers about 30 million potential acres in the Horn River, Liard and Cordova basins, which would include third-party transportation and processing infrastructure, as well as agreements.

Quicksilver management said the midstream partnership is "is strategic to the continued development of the Horn River asset" because it allows for "an economic path to market." Earlier this year the company formed a Horn River midstream unit to support a 130,000 net-acre project (see Shale Daily, April 18). During 3Q2011 Quicksilver's Horn River production jumped 200% from a year earlier (see Shale Daily, Nov. 9).

The agreement is "the second step in ensuring the lowest cost solution relative to current options to move Quicksilver's gas to market," noting that the first step was TransCanada Corp.'s decision to extend its Alberta system to Quicksilver lands. The National Energy Board (NEB) early this year approved the Horn River Project by TransCanada unit NOVA Gas Transmission Ltd. (see Shale Daily, Jan. 31).

The new treating facility is to be at the terminus of TransCanada pipeline, which "enhances the return on Horn River gas by reducing the cost of processing and transporting our gas to AECO," said Quicksilver management.

According to Quicksilver, recoverable reserves from its acreage alone could exceed 10 Tcf. A recent NEB assessment said the estimated reserves could exceed 75 Tcf.