Kinder Morgan, Markwest Utica EMG Form JV To Support Utica

Transaction Type
Sellers
Buyers
Announce Date
Post Date
Estimated Price
MM
Description

To form JV to support northern OH rich-gas development and NGL takeaway from the Utica and Marcellus.

Kinder Morgan Energy Partners LP (NYSE: KMP) and MarkWest Utica EMG LLC, a joint venture between MarkWest Energy Partners LP (NYSE: MWE) and The Energy and Minerals Group, signed a letter of intent to form a midstream joint venture to pursue two critical new projects to support producers in the Utica and Marcellus shales in Ohio, Pennsylvania and West Virginia.

The first project consists of the development of a 400 million cubic foot (MMcf) per day cryogenic processing complex in Tuscarawas County, Ohio, utilizing an existing, 220-acre site that Kinder Morgan has under option. The second project consists of the development of an initial, 200,000 barrels (bbls) per day, C2+ NGL pipeline that originates at the planned joint venture processing facilities in Ohio and transports NGLs to Gulf Coast fractionation facilities.

Key elements of the processing complex project include:

  • MarkWest Utica EMG would anchor the joint ventures’s first of two planned 200 MMcf/d cryogenic processing plants to be constructed on Kinder Morgan’s existing 220-acre site in Tuscarawas County, Ohio (joint venture processing complex). The joint venture would expect the initial 200 MMcf/d cryogenic processing plant to be in service by 4Q 2014 with the second 200 MMcf/d plant in-service shortly thereafter, subject to timing of customer commitments. The existing 220-acre site is expandable and could accommodate more than 1 billion cubic feet per day of processing capacity;
  • MarkWest Utica EMG would deliver rich-gas volumes to the joint venture processing complex through an extension of its existing rich-gas gathering system in Harrison, Belmont, Guernsey, Noble and Monroe counties in Ohio. The joint venture processing complex would provide MarkWest Utica EMG’s producer customers with additional residue outlets into the Tennessee Gas Pipeline and Dominion Transmission pipeline systems;
  • The joint venture processing complex would serve new customers in Carroll, Columbiana, Mahoning and Trumbull counties in northern Ohio and provide a critical full-service solution, which includes gas processing, NGL transportation and fractionation and residue gas outlets;
  • To deliver the northern Utica gas to the processing complex, Kinder Morgan has obtained regulatory approval to convert a portion of an existing 26-inch Tennessee Gas Pipeline Co. LLC pipeline into rich-gas gathering service, which could begin receiving rich-gas by 4Q 2014;
  • The joint venture would construct a new pipeline to deliver NGLs produced at the joint venture processing complex into MarkWest and MarkWest Utica EMG’s extensive NGL gathering network for short-term and long-term fractionation at its Ohio and Pennsylvania fractionation and marketing complexes; and
  • The joint venture would own the processing complex on a 50-50 basis and MarkWest Utica EMG would operate the facilities.

Key elements of the NGL pipeline project include:

  • Kinder Morgan and MarkWest Utica EMG will develop a NGL pipeline project from the tailgate of the joint venture processing complex to Gulf Coast fractionation facilities through the conversion of over 900 miles of Kinder Morgan’s 24-inch and 26-inch Tennessee Gas Pipeline system currently in natural gas service from Tuscarawas County, Ohio to Natchitoches, La., and the construction of 200 miles of new NGL pipeline from Natchitoches to Mont Belvieu, Texas, and/or south Louisiana. Kinder Morgan and MarkWest Utica EMG are evaluating constructing new fractionation facilities, as well as utilizing third-party fractionation facilities throughout the Gulf Coast;
  • The proposed NGL pipeline would access MarkWest and MarkWest Utica EMG’s extensive NGL pipeline network that extends throughout the rich-gas areas of the Marcellus and southern Utica to deliver NGLs to the new NGL pipeline;
  • By converting over 900 miles of existing Tennessee Gas Pipeline assets and utilizing MarkWest and MarkWest Utica EMG’s existing NGL network, the joint venture parties believe their NGL pipeline is best positioned to provide the most cost effective Y-grade outlet from the Utica and Marcellus shale plays to the Gulf Coast area markets;
  • The NGL pipeline would be expandable to 400,000 bbls/d with the addition of pump stations; and
  • Subject to sufficient shipper commitments, permitting and all related regulatory approvals, a 4Q 2015 in-service date for the NGL pipeline is anticipated.

Kinder Morgan would own at least 75% of the NGL pipeline and MarkWest Utica EMG would have the option to invest up to 25%. Kinder Morgan would operate the pipeline.

“We are pleased to announce this exciting joint venture with MarkWest in the Utica and Marcellus shale resource plays,” said Richard D. Kinder, Kinder Morgan chairman and CEO, in the release. “The combination of Kinder Morgan’s strategically located and existing pipeline assets that traverse through the heart of the Utica and Marcellus shale plays, along with MarkWest’s existing and significant midstream footprint throughout the Utica and Marcellus shale plays, should provide significant growth opportunities for the JV.”

“We are excited to partner with Kinder Morgan in this unique opportunity that supports the development of industry-leading midstream solutions,” said Frank Semple, MarkWest chairman, president and CEO, in the release. “The JV processing complex expands our footprint into northern Ohio and complements our existing full-service midstream infrastructure in Ohio, West Virginia and Pennsylvania. The planned joint venture Y-grade pipeline will be by far the most efficient project for the Marcellus and Utica producers to access the Gulf Coast NGL markets and is another critical step in support of our long-term objective of providing our producer customers with multiple market options and maximum value for their natural gas and natural gas liquid production.”

Kinder Morgan Energy Partners LP operates as a pipeline transportation and energy storage company in North America. The company is headquartered in Houston.

Markwest Energy Partners LP, together with its subsidiaries, engages in the gathering, processing, and transportation of natural gas the U.S. The company is headquartered in Denver.

The Energy & Minerals Group is a private equity firm specializing in investments in the natural resource industry including energy and minerals sectors. The firm is based in Houston with an additional office in Dallas.