Second Quarter Acquisitions and Midstream Developments in Ohio
The development of hydraulic fracturing and horizontal drilling has opened up the massive natural resources of the Utica shale play in Ohio. This play is now producing at a rate that makes it difficult for midstream companies to keep pace. Two recent transactions in the second quarter of 2014 represent midstream activities designed to increase infrastructure through gathering and stabilization, pipelines and trucking transportation.
Rose Rock Midstream Purchases Trucking Assets From Chesapeake Energy
A subsidiary of Chesapeake Energy Corp. has sold some of its crude oil trucking assets to Rose Rock Midstream, L.P. This transaction includes 200 employees, as well as 125 trucks, 122 trailers and related equipment currently operating in Texas, Oklahoma and Ohio. The acquisition also includes an agreement for term transportation at market rates with Chesapeake Energy Marketing, Inc.
Once the acquisition closes, Rose Rock’s fleet will be nearly doubled, to over 250 trucks, and roughly 350 employees. This transportation system will serve several active shale plays. These include:
- Eagle Ford
- Granite Wash
- Mississippi Lime
- San Juan
Summit Investment Acquires Interest in Ohio Gathering
Summit Midstream Partners, LP (SMLP), is a privately held company that provides services including the gathering and compression of natural gas in the Marcellus shale play, as well as other unconventional resource formations. Headquartered in Dallas, Texas, SMLP has the ownership and operation of almost 2,300 miles of pipeline and over 230,000 horsepower of compression.
Recently, a subsidiary of Summit Investments acquired an equity interest of 40 percent in the Ohio Gathering and Ohio Condensate companies from MarkWest and The Energy & Minerals Group. To exercise this option, the company reimbursed MarkWest and EMG roughly $377 million. This represented 40 percent of all Ohio Gathering capital contributions to this point.
Ohio Gathering provides midstream infrastructure to the Utica shale region in the southeastern Ohio counties of Harrison, Guernsey and Belmont, as well as others. Both the current and developing infrastructure have two separate gathering systems for liquids-rich and dry gasses, and a transportation, storage and stabilization facility for condensates.
The gathering system for liquids-rich gasses is a crucial inlet for the Cadiz and Seneca processing complexes of MarkWest Utica EMG, LLC, which is the Utica Shale’s biggest integrated system for processing and fractionation. The joint venture between Summit Investments, MarkWest and EMG is expected to result in a $3 billion infrastructure. The current rate gathered for the companies Gulfport Energy, Rex Energy and PDC Energy by Ohio Gathering is about 181 million cubic feet per day.
This transaction is Summit Investments’ largest to date, and through it the company expects to grow even further as they develop Ohio Gathering.
These two transactions are representative of the many ways that midstream companies are attempting to deal with the massive influx of oil, natural gas, and natural gas liquids that the shale plays are producing at record rates. Even with the current low prices of natural gas slowing production, midstream development is racing to catch up. If exploration and production companies are successful in their discussions with the federal government to lift sanctions on exports, the demand created may be overwhelming.