An El Paso Corp. subsidiary and private equity firm Kohlberg Kravis Roberts & Co. are investing more than $1 billion through a joint venture (JV) that would focus on domestic natural gas midstream projects.

The announcement Tuesday follows an onslaught of related midstream action as U.S. producers continue to successfully tap liquids-rich shale gas formations (see related story).

Under the plan El Paso Midstream Group Inc. and KKR each would invest up to $500 million to pursue midstream developments to serve the Marcellus and Eagle Ford shale formations. El Paso Midstream would operate the JV.

El Paso Midstream President Mark Leland said KKR has had success in investing in energy-related infrastructure "and we believe that the combination of our two companies creates a strong competitor in the midstream space."

Projects already on the drawing board for the partners include the proposed Marcellus Ethane Pipeline System (MEPS), which was announced El Paso last August (see Daily GPI, Aug. 10). Since the initial announcement, Spectra Energy Corp. has agreed to work on the MEPS project, El Paso said.

The JV partners also plan to jointly work on El Paso's proposed Camino Real Pipeline in the Eagle Ford Shale. Like its deal with Spectra in the Marcellus, El Paso expects to secure a partner for the Camino Real. At mid-year El Paso held about 165,000 net acres in the Eagle Ford Shale (see Daily GPI, June 23).

Leland, formerly El Paso Corp.'s CFO, helmed the relaunch of the company's midstream business last year (see Daily GPI, Oct. 21, 2009). El Paso had been a top midstream player but the implosion of the energy sector in 2002 led the company to begin selling off parts of the business beginning in 2003, originally to GulfTerra Energy Partners LP, which later merged with Enterprise Products Partners LP (see Daily GPI, Dec. 16, 2003).

By 2005 El Paso was out of the midstream game, but even then the long-term plan was to rebuild once financial stability was in place, spokesman Richard Wheatley told NGI. Tuesday's announcement is the first big news for the unit and allows El Paso to again stake a claim in the midstream market -- at an opportune time, he said.

"The emergence of unconventional resources is driving a need for significant investment in midstream infrastructure in the U.S., and El Paso's talented team is developing projects that are very well positioned to meet these needs," said KKR's Marc Lipschultz, the global head of Energy and Infrastructure business. "El Paso is a world class pipeline operator and developer, and we are thrilled to be partnering with them to build a leading midstream business."

Separately KKR agreed to acquire a half stake in El Paso's Altamont gathering and processing system in Utah for $125 million. The Altamont system includes 800 miles of pipelines, 3,800 b/d of fractionation capacity and 40 MMcf/d of gas processing capacity.

The combined transactions are expected to be completed by the end of this month.

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