Dominion and Caiman Energy II LLC on Thursday said they are forming Blue Racer Midstream LLC, a $1.5 billion joint venture (JV) that would provide midstream services to natural gas producers operating in the Utica Shale in Ohio and portions of Pennsylvania.
Blue Racer would 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 to develop a business in the Utica (see Shale Daily, March 20). Blue Racer would offer gas gathering, processing, fractionation, and natural gas liquids transportation and marketing.
“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 Shale Daily, Oct. 29).
The Blue Racer JV, said Farrell, “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 would offer “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 both gathering and processing assets. Dominion East Ohio’s existing gas gathering network would be contributed, 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 would include Dominion’s Natrium Extraction Plant and related facilities, which now are being built in Marshall County, WV (see Shale Daily, Jan. 31). Also to be included is the Dominion Transmission pipeline, which would 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; it would be expandable to serve market needs.
Williams Partners, which owns a 47.5% interest in Caiman Energy II, plans to contribute through 2014 $380 million of the $800 million total 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.
“Through our interest in Caiman Energy II, Blue Racer Midstream gives us additional exposure to the Utica Shale, which is one of the fastest growing resource plays in North America,” said Williams CEO Alan Armstrong. Williams owns 72% of the pipeline partnership.
‘We believe this venture has all the elements to be highly successful in delivering timely, safe and reliable midstream services to producers in this fast-growing area. We are excited to be partnering with Dominion, a well established operator with well positioned assets in this region, and Caiman who continues to demonstrate strong development capabilities.”
The pipeline partner’s investment was included in Williams’ 2012-2014 capital spending guidance. The partnership expects cash distributions from its investment in Caiman Energy II beginning with about $20 million in 2014.
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