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MarkWest Buys Chesapeake Midstream Business in Anadarko Basin

May 10, 2013
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Marcellus and Utica shale midstreamer MarkWest Energy Partners LP has expanded its service offerings in the Anadarko Basin in a $245 million cash agreement with Chesapeake Energy Corp.

The transaction, which includes all of Chesapeake's midstream assets in the play, was completed when the agreements were executed, the Denver operator said. Producing formations in the Anadarko Basin associated with the assets include the Granite Wash and Hogshooter formations.

"The Granite Wash offers producers some of the most profitable, derisked areas of liquids-rich production in the United States," said MarkWest CEO Frank Semple. "This transaction provides MarkWest with an unrivaled opportunity to strengthen and grow our leading midstream presence in the Texas Panhandle and Western Oklahoma."

Included in the transaction is the Buffalo Creek Plant now under construction, a 200 MMcf/d cryogenic gas processing facility that is expected to be in service early next year. Also included are 22 miles of gas gathering pipeline in Hemphill County, TX, and 30 miles of rights-of-way associated with the future construction of a high-pressure trunk line. An amine treating facility and a five-mile-long gas gathering pipeline in Washita County, OK were part of the deal.

In conjunction with the deal, MarkWest executed long-term, fee-based midstream agreements with Chesapeake, which is dedicating about 130,000 acres across the basin to MarkWest. Initial gas volumes from Chesapeake are estimated at 50 MMcf/d, increasing to more than 250 MMcf/d by 2017. Adjusted earnings from the acquisition are estimated at $30 million for 2014 and more than $50 million by 2017.

To support Chesapeake's drilling program, MarkWest plans to invest about $90 million over the next five years to complete and expand associated infrastructure. Most of the capital is to be spent in the next two years to complete the Buffalo Creek facility and the high-pressure trunk line to connect various low-pressure gas gathering systems that are owned and operated by third parties.

"Once completed, these assets will be highly synergistic with MarkWest's existing operations in the Granite Wash, which include gas gathering systems totaling 340 MMcf/d of throughput capacity, and the 235 MMcf/d Arapaho processing complex in Custer County, OK."

In addition to the Anadarko Basin purchase, MarkWest said it extended a "key processing agreement" with Chesapeake in the Appalachian Basin, increasing the agreement for five years to 2020.

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