Crestwood Midstream Partners LP on Tuesday said it is building its foothold in the Marcellus Shale after wresting control of a natural gas partnership created last year.
The Houston-based operator, initially financed by First Reserve Corp., agreed to pay $258 million to purchase the remaining 65% stake in Crestwood Marcellus Midstream LLC (CMM), a joint venture (JV) formed last February with Crestwood Holdings Partners LLC, also controlled by First Reserve (see Shale Daily, Feb. 28, 2012). The JV initially paid $415 million to buy a gathering system in northern West Virginia owned by Antero Resources Appalachian Corp.
Once the transaction is completed, First Reserve’s stake in Crestwood Midstream would fall to 47% from 100%.
“This acquisition is the first dropdown transaction for Crestwood Holdings, which shows the benefit of First Reserve’s long-term support and substantially increases Crestwood’s exposure to the rich gas area of the Marcellus Shale region,” said Crestwood general partner CEO Robert G. Phillips. “When we acquired the Antero…Marcellus Shale midstream assets in March 2012 for $382 million, we structured the CMM joint venture to allow Crestwood to acquire an interest in an early stage, high-growth Marcellus Shale gathering business without significant stress on Crestwood’s balance sheet.
“The Antero acquisition has exceeded our expectations, with total gathering volumes increasing from approximately 200 MMcf/d in early 2012 to almost 400 MMcf/d at the end of 2012, and we expect this significant volume growth to continue in 2013 based on the latest development plans from Antero.”
Phillips said the “recently completed $95 million Enerven compression acquisition added an additional component to our 2013 growth plans and supported the rationale to accelerate the dropdown of Crestwood Holdings’ interest in CMM into Crestwood.” Three months ago the midstreamer acquired Enerven Compression LLC for $95 million (see Shale Daily, Nov. 27, 2012). Antero at that time had a five-year gas gathering agreement with Enerven.
“By retaining the Class D units and materially increasing its ownership stake in the partnership, Crestwood Holdings has shown its continued commitment to support and participate in the long term growth of Crestwood,” said Phillips.
According to operator, the $258 million purchase price “reflects an enterprise value of $525 million for 100% of CMM, including net CMM debt of approximately $130 million, and implies a transaction value of approximately 8.9 times estimated CMM 2013 earnings before interest, taxes, depreciation and amortization, which is consistent with comparable transactions in the midstream sector.”
With the completion of the transaction, the operator would own all of CMM’s natural gas gathering, compression and dehydration business, which primarily serves the rich-gas southwestern core of the Marcellus. The assets include close to 40 miles of low pressure gathering pipeline and 43,000 hp of compression assets in Harrison and Doddridge counties, WV, supported by long-term, 100% fixed-fee contracts with Antero, which now is running 12 rigs on its West Virginia leasehold.
“At year-end 2012, spot volumes on Crestwood’s Marcellus Shale gathering systems were approximately 400 MMcf/d and are expected to exceed 500 MMcf/d by the end of 2013 with the connection of approximately 60-70 new wells,” the operator said.
Based on Antero’s planned 2013 drilling and development in the eastern part of West Virginia, “Crestwood expects to expand its low pressure gathering systems with an additional 18 miles of pipeline. In addition to the four compressor stations acquired from Enerven,” it said. “At least” two new compressor stations may be added to the dedicated Antero area by year’s end.
Crestwood Midstream’s management team also said it is in “early discussions with Antero regarding the accelerated development of midstream infrastructure” in the western part of a dedicated area, which would include adding incremental compressor stations to “materially increase total Marcellus Shale gathering capacity by year-end 2013.”
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