Crestwood Adds To Granite Wash, Fayetteville Midstream Portfolio

Crestwood Midstream Partners LP, Houston, (NYSE: CMLP) plans to acquire certain midstream assets in the Fayetteville shale and the Granite Wash plays from Tulsa, Okla.-based Frontier Gas Services LLC for approximately $338 million, with an additional $15 million to be paid to Frontier if certain operational objectives are met within six-months of the closing date.

The Frontier Fayetteville assets consist of approximately 127 miles of high pressure and low pressure gathering pipelines with capacity of approximately 510 million cubic feet (MMcf) per day, treating capacity of approximately 165 MMcf per day and approximately 35,000 hp of compression. The Fayetteville systems interconnect with multiple interstate pipelines which serve the Fayetteville shale and are supported by long-term, fixed-fee contracts with blue chip producers who have dedicated approximately 100,000 acres in the core of the Fayetteville shale to Frontier.

The Frontier Granite Wash assets currently consist of a 28 mile pipeline system and a 36 MMcf per day cryogenic processing plant in the Texas Panhandle. The Granite Wash area has emerged as a highly economic liquids-rich gas play with active drilling programs by area producers. The Granite Wash assets are supported by long-term contracts with producers which have substantial Texas Panhandle area drilling programs underway. Crestwood LP plans to install a second processing plant with 60 MMcf per day of capacity that is expected to be in service by the end of 2011 to provide additional capacity to support growth in volumes from this region.

Robert G. Phillips, president and chief executive, Crestwood LP's general partner, says, "The Frontier acquisition significantly expands the size and scope of the partnership by adding high-quality, infrastructure assets in two prolific unconventional resource plays that will provide Crestwood LP with additional fee-based revenues supported by long-term acreage dedications with visible organic growth opportunities."

Following this acquisition, Crestwood will be positioned as a predominantly shale-operating midstream service provider in the Barnett shale play in North Texas, the Fayetteville shale play in Arkansas and the Granite Wash play in the Texas Panhandle, adds Phillips.

Crestwood LP expects to finance the equity portion of the purchase price through a private placement transaction with institutional investors who have agreed to acquire approximately 6.2 million units of new Class C limited partner interests, to be issued by Crestwood LP at a price of $24.50 per unit, resulting in gross proceeds of approximately $153 million.

Additionally, Crestwood LP has obtained a commitment from UBS Loan Finance LLC, BNP Paribas, Royal Bank of Canada and Royal Bank of Scotland Plc for a senior unsecured bridge facility of up to $200 million, which will be available to finance the remainder of the Frontier acquisition. Prior to the closing of the acquisition, Crestwood LP plans to raise cash through the issuance of long-term debt, rather than utilize the bridge facility.

Barclays Capital is the sole placement agent to Crestwood on the private placement of the Class C units.

The deal is expected to close in the second quarter of 2011.