Two experienced midstream companies, Dominion (NYSE: D) and Caiman Energy II, LLC, (Caiman) have announced they are forming a $1.5 billion joint venture to provide midstream services to natural gas producers operating in the Utica shale in Ohio and portions of Pennsylvania. The companies expect to close on the joint venture by the end of the year.
The joint venture, Blue Racer Midstream, LLC, will be an equal partnership between Dominion and Caiman, with Dominion contributing midstream assets and Caiman contributing private equity capital.
The joint venture will leverage Dominion's existing presence in the Utica with significant additional new capacity designed to meet producer needs as the Utica shale acreage is developed. Midstream services offered will include gathering, processing, fractionation, and natural gas liquids transportation and marketing.
"The Utica shale has enormous potential to provide jobs and revenues for the local Ohio economy," said Thomas F. Farrell II, Dominion's chairman, president, and chief executive officer. "Because the portion of the Utica shale targeted today produces a rich gas stream, gathering and processing capacity must be developed so that the natural gas and valuable natural gas liquids can be separated and sold. Caiman Energy brings to the joint venture a proven track record in developing one-stop midstream shopping for producers.
"The joint venture allows Dominion to capture the value of our assets in the Utica region and supports our five to six percent annual operating earnings per share growth targets, while at the same time accelerating Utica midstream capital spending by up to $800 million," Farrell said. "This additional flexibility will be valuable as we proceed with our growth plan. Under the Utica joint venture, Dominion expects to benefit from cash received for its assets and pro-rata earnings from the joint venture."
"Dominion brings well-positioned assets and experienced operations for gathering, processing, fractionating, and delivering natural gas and liquids produced from the Utica shale field," said Jack Lafield, Caiman's chairman and chief executive officer. "With our experience in developing midstream businesses and our $800 million in equity commitments for the joint venture, we can quickly leverage Dominion's assets, expertise, and relationships to meet producers' needs as they fully develop their natural gas acreage."
Dominion facilities to be contributed to the joint venture include both gathering and processing assets. Dominion East Ohio's existing rich gas gathering network will be contributed, along with other portions of its gathering system as more lines are converted to rich gas gathering operations. With investment, the joint venture's gathering pipeline system could be expanded to transport at least 2 billion cubic feet of natural gas per day.
Also included are Dominion's Natrium Extraction Plant and related facilities, currently under construction in Marshall County, and a Dominion Transmission pipeline connecting Natrium to the Dominion East Ohio gathering system.
Natrium is expected to process 200 million cubic feet of natural gas a day and fractionate 36,000 barrels of liquids and can be expanded to serve market needs. Natrium is designed to separate the natural gas liquids into industrial-quality propane, butane, ethane, and other products. The products will be able to reach multiple markets through a variety of delivery options, including truck, railroad, pipeline, and barge facilities.
UBS Investment Bank served as sole advisor to Dominion. Barclays and Citi acted as financial advisors to Caiman Energy.
Caiman Energy II, LLC is a midstream energy company focused on the design, construction, operation, and acquisition of midstream assets. The company is currently focused on midstream projects in the Utica shale and serves producers by providing natural gas and condensate gathering, compression, dehydration, measurement, treating and conditioning, processing, liquids transportation, and fractionation services. Caiman Energy II is backed by equity commitments from Williams Partners (NYSE: WPZ), EnCap Flatrock Midstream of San Antonio, Highstar Capital of New York, and management. For more information, visit www.CaimanEnergy.com.
Dominion is one of the nation's largest producers and transporters of energy, with a portfolio of approximately 27,400 megawatts of generation; 11,000 miles of natural gas transmission, gathering, and storage pipeline; and 6,300 miles of electric transmission lines. Dominion operates one of the nation's largest natural gas storage systems with 947 billion cubic feet of capacity and serves retail energy customers in 15 states. For more information about Dominion, visit the company's website at www.dom.com.