Crestwood acquires Niobrara gas gathering interest

Crestwood Midstream Partners LP subsidiary Crestwood Niobrara LLC has entered into an agreement to acquire a 50% interest in Jackalope Gas Gathering Services LLC from RKI Exploration & Production LLC. The Jackalope gathering and processing system in Converse County, Wyo., provides Crestwood with early-stage access to the Powder River basin Niobrara shale play, the company said.

The other 50% interest in Jackalope is owned by Access Midstream Partners LP, which acquired its interest in Jackalope in December 2012 from Chesapeake Energy Corp. As a part of the current transaction, Access will continue to provide field operations and construction management for Jackalope and Crestwood will assume commercial development responsibilites for the joint venture.

Chesapeake and RKI have collectively accumulated the largest acreage block in the Powder River Basin play, spanning over 750,000 acres and are aggressively developing the acreage under a joint development agreement, according to Crestwood. Crestwood is developing the Jackalope System to gather and process rich natural gas produced from a 311,000-acre area in Converse County where RKI and Chesapeake have focused the majority of their drilling activity.

The Jackalope System consists of roughly 100 miles of gathering pipelines and 9,400 hp of compression, with near-term plans to install a new gas processing facility and continue to expand the gas gathering system. 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.

The purchase will cost Crestwood $108 million. RKI is a privately-owned, independent exploration and production company focused in the Powder River, Permian and Denver-Julesberg basins. First Reserve, which owns a minority stake in RKI, is also Crestwood's indirect general partner and largest common unit holder.

The acquisition is expected to close next quarter, subject to customary regulatory approvals. In connection with the acquisition and expected future infrastructure development, GE Energy Financial Services agreed to fund, subject to additional approvals, 75% of the acquisition and future capital contributions for Crestwood Niobrara's 50% interest in Jackalope, up to $150 million in preferred equity. The remaining contribution for Crestwood Niobrara's interest will be funded with available borrowing capacity under Crestwood's revolving credit facility.

Crestwood last year spent $90 million buying a Barnett shale gathering and processing system from Devon Energy Corp. The deal included 74 miles of low-pressure gas gathering and a 100-Mmcfd cryogenic processing plant (OGJ Online, July 24, 2012).

Contact Christopher E. Smith at chriss@ogjonline.com.

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