One day after Magnum Hunter Resources Corp. agreed to sell $100 million of convertible preferred units in subsidiary Eureka Hunter Holdings LLC to an affiliate of ArcLight Capital Partners LLC, the producer announced Thursday that $58.5 million of the proceeds would be used by Eureka Hunter to acquire natural gas treating company TransTex Gas Services LP, a privately held company based in Houston.

The acquisition excludes the assumption of TransTex's debt. The purchase price consists of approximately $46.8 million in cash and $11.7 million in common units of Eureka Hunter. The acquisition is expected to close around April 2.

TransTex is primarily engaged in the business of treating natural gas, including leasing equipment to third parties in need of natural gas treating. Eureka Hunter said TransTex is the largest privately held contract gas treating company in the United States with treating plants currently deployed in seven states serving approximately 30 different customers. TransTex's services include gas treating, processing, dehydration, pressurized natural gas liquids (NGL) storage tanks, hydrogen sulfide (H2S) scavengers, power generation and wellhead separation facilities. The TransTex fleet is comprised of 50 amine plants to treat and remove carbon dioxide and H2S from natural gas and an interest in a fleet of hydrocarbon dew point control plants.

One of TransTex's facilities is in close proximity to the Eagle Ford Shale drilling activity in South Texas where Magnum Hunter is presently active with four drilling rigs. Eureka Hunter will also retain TransTex's management team, a move the company said would allow it to grow its presence in the processing side of the business as it looks to further expand existing operations in Ohio and West Virginia. Magnum Hunter would retain an approximate 72% equity ownership in Eureka Hunter following the closing of TransTex, valuing its remaining interest in Eureka Hunter at approximately $299 million.

"The addition of the TransTex's group of assets and management team to Eureka Hunter is another step in our overall business plan, which makes for a very comprehensive and well rounded midstream services company," said Magnum Hunter CEO Gary C. Evans. "Eureka Hunter will now have immediate access and the ability to offer producers skid mounted wellhead treating and field processing plants ideally suited for specific customer needs. In addition, TransTex will broaden its footprint as Eureka Hunter continues to expand its gathering system in the Marcellus Shale of West Virginia and into the Utica Shale in eastern Ohio. With the acquisition of TransTex, we are significantly closer to the MLP [master limited partnership] objective we are ultimately seeking."

TransTex co-founder and president Greg Sargent said he believes TransTex and Eureka Hunter "will create a very formidable midstream company."

The deal comes one day after ArcLight invested $100 million in Eureka Hunter, giving the investment firm a 28% interest in the holding company for Magnum Hunter's midstream operation, including the Eureka Hunter Pipeline located in West Virginia and Ohio. ArcLight also has the right to invest up to an additional $100 million of preferred units.

"This investment provides a clear valuation of our midstream business that management has been seeking for some time," said Magnum Hunter CFO Ronald D. Ormand. "In addition, the capital commitment from a well funded and experienced capital provider like ArcLight will allow Eureka Hunter to more quickly expand our footprint in West Virginia, begin to develop our gathering system in the Utica Shale in Ohio, and accelerate our ability to complete an IPO [initial public offering] of Eureka Hunter without any additional required funding from Magnum Hunter."

In late January Magnum Hunter said it had set its sights on building out its Appalachian assets by expanding its operations in the liquids-rich Marcellus Shale (see Shale Daily, Jan. 31). At that time, the company noted that it had brought four wells online in the fourth quarter of 2011 on acreage in northern West Virginia that it said "appears to be some of the best in the entire Marcellus," and had built 45 miles of pipeline in the region over the past 18 months.