Chesapeake Energy Corp. (CHK) said Tuesday it has entered into a partnership with M3 Midstream LLC and EV Energy Partners, L.P. (EVEP) to develop the largest midstream services complex in eastern Ohio for about $900 million.
The complex will provide the required infrastructure to process natural gas and natural gas liquids or NGL in the liquids-rich Utica Shale play in eastern Ohio.
Chesapeake noted that the complex will consist of natural gas gathering and compression facilities constructed and operated by Chesapeake's subsidiary, Chesapeake Midstream Development, L.P or CMD. It will also consist of processing, NGL fractionation, loading and terminal facilities constructed and operated by M3 Midstream or Momentum.
According to Chesapeake, the partnership plans to invest about $900 million over the next five years, with the major portion of the capital to be invested in the first two years. The partnership will be owned 59 percent by affiliates of CMD, 33 percent by Momentum and 8 percent by EVEP. The cryogenic processing facility will be located in Columbiana County and have an initial capacity of 600 million cubic feet per day. NGLs will be delivered to a central NGL hub complex in Harrison County that will have an initial NGL storage capacity of 870,000 barrels and fractionation capacity of 90,000 barrels per day, in addition to substantial rail-loading facility. Total E&P USA, Inc., Chesapeake's 25 percent joint venture partner in the Utica Shale wet gas acreage, has an option to participate in the project. This may proportionately reduce the ownership of CMD affiliates and EVEP to 44 percent and 6 percent respectively.
Chesapeake said that significant engineering and procurement has already begun for the project with the first cryogenic processing and fractionation plants scheduled to be in service by the second quarter of 2013.
Mike Stice, CMD's President, said, "We are pleased to partner with Momentum and EVEP to build a critically important link in the value chain for the rapidly developing Utica Shale play. This partnership will allow CMD to focus on building the extensive gathering and compression requirements of the system, while leveraging the expertise of Momentum to build and operate the processing and fractionation facilities."
Last week, Chesapeake and private equity firm Kohlberg Kravis Roberts & Co L.P. (KKR) they will form a partnership to invest in mineral interests and overriding royalty interests in key oil and gas basins in the U.S. KKR and Chesapeake will make an initial combined $250 million commitment to the partnership.
CHK closed Tuesday's trading at $24.70, up $0.49 or 2.02 percent on a volume of 10.69 million shares. EVEP closed trading at $72.51, down $0.87 or 1.19 percent on 225,993 shares. In after-hours, the stock gained $1.48 or 2.04 percent to $73.99.
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