Crestwood Closes On Jackalope Purchase
Closed its purchase of a 50% stake in Jackalope Gas Processing Services.
A subsidiary of Crestwood Midstream Partners LP (NYSE: CMLP) has closed on its purchase of a 50% stake in Jackalope Gas Processing Services LLC from RKI Exploration & Production Co. for $107.5 million.
The other 50% interest in Jackalope is owned by Access Midstream Partners LP, which will continue to provide field operations and construction management for Jackalope, and Crestwood will assume the commercial development role for the joint venture.
GE Energy Financial Services provided $80.6 million of preferred equity to Crestwood Niobrara, the CMLP subsidiary which made the purchase, with the remaining $26.9 million of the acquisition funded under Crestwood's revolving credit facility. GE Energy Financial Services has agreed to provide 75% of the future capital contributions for Crestwood Niobrara's 50% interest in Jackalope, up to an aggregate contribution of $150 million.
The Jackalope gathering and processing system is located in Converse County, Wyoming, in the emerging Powder River Basin Niobrara Shale play and is currently composed of approximately 100 miles of gathering pipelines and 9,400 horsepower of compression equipment. The Jackalope System is being developed to gather and process rich natural gas produced from a 311,000-acre area of dedication from Chesapeake Energy Corp. (NYSE: CHK) and RKI.
Chesapeake and RKI have collectively accumulated the largest acreage block in the Powder River Basin Niobrara Shale play, spanning over 750,000 acres. The existing assets and future development are supported by a 20-year gathering and processing agreement with Chesapeake and RKI under which Jackalope receives cost-of-service based fees with annual redeterminations that provide for an attractive rate of return on invested capital.
"We are pleased to complete this transaction expanding Crestwood's operations into another very active and emerging shale play," said Robert G. Phillips, chairman, president and chief executive of Crestwood's general partner. "This transaction is another step in the execution of our strategy to position Crestwood in rich gas plays supported by long-term contracts and large acreage dedications. The Jackalope System provides significant visibility to cash flow growth as midstream infrastructure is expanded to support very capable producers in the Niobrara play. In addition, we are very excited about the future opportunities the transaction provides for Crestwood to extend its value chain services as infrastructure in the play develops," Phillips added.
Dan Castagnola, a managing director at GE Energy Financial Services in Houston, said: "We are partnering with strong companies to develop infrastructure underpinned by long-term, fee-based contracts providing attractive returns and helping to grow US shale plays."
Locke Lord LLP and Sidley Austin LLP acted as legal counsel to Crestwood Niobrara and GE Energy Financial Services, respectively, in connection with the acquisition and financing transactions.
With 10 drilling rigs currently running in the area, a 20-year cost-of-service midstream contract, and more than 1,000 estimated drilling locations in the current acreage dedication, Crestwood thinks this investment has the potential to be another great, high-growth shale play like its Marcellus position. The Jackalope platform provides additional opportunities for Crestwood to extend its value chain services to include NGL and crude oil storage, blending, truck and rail terminaling, transportation and marketing.
It also further highlights the merits of Crestwood's recently announced combination with Inergy LP and Inergy Midstream LP, which specialize in these value chain midstream services, said Robert G. Phillips, chairman, president and CEO of Crestwood's general partner, in the release.
Crestwood Midstream Partners LP is a midstream operator based in Houston. RKI is a privately-owned, independent E&P company focused in the Powder River, Permian and Denver-Julesberg Basins. First Reserve is an energy-focused private equity firm that is also Crestwood's indirect general partner and largest common unit holder.