A unit of Magnum Hunter Resources Cop. and DCP Midstream Partners LP plan to serve gas producers in western West Virginia and eastern Ohio with a new gas gathering joint venture (JV).
Magnum subsidiary Eureka Hunter Pipeline LLC and DCP, along with its sponsor, DCP Midstream LLC, will construct, own and operate gathering assets and will each own 50% of the proposed “gathering JV.”
The capacity of the initial facilities will be about 200 MMcf/d. They are expected to begin operating in the 20-30 MMcf/d range in the fourth quarter. The first phase of the system will allow Magnum Hunter to flow gas discovered in both its Weese Hunter No. 1001 and No. 1002 wells immediately to sales via a tap to Dominion Field Services. It also will provide services to third party producers in the vicinity where gas is currently shut-in due to limited pipeline infrastructure.
The estimated cost to complete the initial facilities is $35 million, with Magnum Hunter funding approximately $12.5 million and DCP funding approximately $22.5 million. Terms also include a $5 million payment by DCP to Magnum Hunter at closing for rights of way that are being contributed in excess of the initial project.
A groundbreaking for the project, called Eureka Hunter Gas Pipeline, was held Friday.
Magnum Hunter CEO Gary C. Evans said the gathering JV “is designed to accomplish three key objectives for Magnum Hunter: (1) assure the Company of firm gathering service for its incrementally increasing equity natural gas production volumes as we begin ramping up our Marcellus Shale horizontal drilling program on our significant acreage position over the next several years; (2) significantly reduce the amount of incremental capital that Magnum Hunter will require going forward for investment in future midstream projects in the region; and (3) allow the company to retain a significant equity stake in the gas gathering infrastructure developed in areas of West Virginia and Ohio where limited gas gathering pipeline capacity and facilities exist.”
Once the initial facility is constructed, the partners plan to fund the venture’s future capital requirements for expansion facilities on a 50/50 cost basis. Closing of the proposed JV is expected to occur during the fourth quarter of 2010.
DCP Midstream LLC CEO Tom O’Connor said the JV offers the company the opportunity to build on its recent entry into the Marcellus play through an alliance with EQT Corp. in Appalachia.
Magnum Hunter through subsidiary Triad Hunter LLC owns more than 88,000 net mineral acres in Ohio, West Virginia and Kentucky, including approximately 42,000 net acres of prospective Marcellus Shale acreage in northwestern West Virginia.
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