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Ohio Utica Shale

MarkWest, EMG provide update on Utica infrastructure joint venture

By Bob Downing Published: February 6, 2013

From the Marcellus Drilling News:

At the end of 2011, MarkWest Energy and The Energy & Minerals Group (EMG) announced that MarkWest was buying out EMG’s share in a 3-year-old joint venture deal in the wet gas portion of the Marcellus Shale called MarkWest Liberty Midstream. EMG owned a 49% stake in that JV (see MarkWest Pays $1.8B to Buy Out JV Partner in Liberty Midstream). At the time of the buyout, the two companies announced they would form a new JV to build midstream infrastructure in Ohio's Utica Shale starting in 2012.

The new Utica JV (called MarkWest Utica EMG) ramped up in early 2012 as the pair set out to duplicate their success in building out the Marcellus in the fledgling Utica. The strategy? “Creating a large network of processing complexes connected through an extensive NGL gathering system,” which they immediately began to do by beginning construction on two new processing complexes in Harrison and Monroe counties in Ohio (see MarkWest to Expand/Build NGL Plants on New Agreements). Just one tiny problem: the Utica JV is now running short on cash…

On Tuesday, MarkWest and EMG announced an update to their Utica JV plans: EMG is more than doubling their investment in the Utica JV—from $450 million to $950 million. Normally an increase like that would mean EMG gets a bigger ownership share of the JV, but according to the press release, such is not the case. Interesting.

In the same announcement, MarkWest says they will contribute an additional $150 million to the Utica JV on “a short-term basis.” MarkWest will be reimbursed for its “contribution” out of the new money coming from EMG. Translation: The JV is going well but cash has dried up, so MarkWest is floating the JV a short-term loan until a larger “hit” comes in from EMG.

In addition to the two processing complexes they’re building, the Utica JV is working on gathering pipeline systems and pipelines for natural gas liquids (NLGs). The Utica JV has signed up Antero Resources, Gulfport Energy and Rex Energy as customers for their pipeline/processing plant infrastructure. The JV plans call for pipelines to other processing plants and even a connection from one of their plants to the ATEX ethane pipeline which will carry ethane from the Marcellus and Utica all the way to the Gulf Coast for processing.

Here is the statement from the two companies:

DENVER--(BUSINESS WIRE)--Feb. 5, 2013-- MarkWest Energy Partners, L.P. (MarkWest) (NYSE: MWE) and The Energy & Minerals Group (EMG) announced today that as a result of their continued success in developing a world-class midstream system in the Utica Shale, the parties have executed a term sheet, which increases EMG’s initial capital contribution in MarkWest Utica EMG, LLC (Utica Joint Venture) by up to $450 million, bringing their total initial contribution to up to $950 million. The transaction allows EMG to increase its contribution in one of the fastest-growing and highly- prospective shale plays in the United States and provides MarkWest with significant additional financial flexibility in the timing of its capital contributions to the Utica Joint Venture. The transaction does not modify the ownership interest levels or quarterly distribution percentages as set forth in the existing Limited Liability Company Agreement (L.L.C. Agreement) between the parties.

MarkWest and EMG also executed an amendment to the L.L.C. Agreement that provides for MarkWest to contribute up to $150 million to the Utica Joint Venture on a short-term basis. EMG is expected to provide additional funding by the end of February and in no instance any later than the end of the first quarter of 2013 at which point in time, MarkWest will receive a distribution substantially equivalent to its short-term contribution to the Utica Joint Venture. MarkWest anticipates utilizing a portion of its available liquidity resulting from its recently completed capital market transactions for the interim funding.

The Utica Joint Venture is currently developing a fully-integrated midstream system to support rapidly expanding development plans of producers including Antero Resources, Gulfport Energy Corporation and Rex Energy. The system includes extensive low- and high-pressure gas gathering systems, natural gas liquids (NGL) pipelines, and two large-scale processing complexes that will have nearly 800 million cubic feet per day (MMcf/d) of processing capacity. The two processing complexes will be connected by a high-pressure rich-gas pipeline header that will provide enormous flexibility and redundancy for producer customers operating in the core liquids-rich area of the Utica Shale. MarkWest Utica will construct an NGL gathering line between its processing complexes and on to the Hopedale fractionation and marketing complex located in Harrison County, Ohio. The Cadiz processing complex will include a de-ethanization facility where purity ethane will be produced and delivered into the ATEX ethane pipeline. The propane and heavier natural gas liquids will then flow via pipeline to the Hopedale fractionator for further separation into valuable purity products. Together these facilities will represent the largest fractionation and marketing complex in the Utica Shale, providing 100,000 barrels per day (Bbl/d) of C2+ fractionation capacity with an expected completion date of first quarter 2014. The Hopedale facility will also be connected by pipeline to MarkWest’s extensive NGL infrastructure in the Marcellus Shale and to its Houston, Pennsylvania complex, the largest fractionation and marketing facility in the Northeast.

The anticipated additional capital contributions by EMG will allow the Utica Joint Venture to continue to rapidly expand its presence throughout the Utica Shale and keep pace with the significant increase in planned drilling activity throughout the region. MarkWest’s 2013 capital expenditure forecast remains unchanged in a range of $1.4 to $1.9 billion.

“We are pleased to announce the continued development of our Utica Shale system and the expansion of our partnership with EMG,” said Frank Semple, Chairman, President and Chief Executive Officer of MarkWest. “The acceleration of our Utica midstream development is a direct result of the ongoing success of our producer customers’ drilling programs. Our long-term relationship with EMG has provided us with the capital flexibility to build ahead of our customers and provide fully integrated natural gas and natural gas liquids services in one of the best resource plays in the US."

“We are thrilled to once again leverage our relationship with MarkWest to help meet their liquidity needs with a large scale flexible solution that contemporaneously meets the needs of the producer community for additional capacity given the drilling results experienced to date in the Utica,” stated John Raymond, Managing Partner and CEO of EMG.

About MarkWest Energy Partners, L.P.

MarkWest Energy Partners, L.P. is a master limited partnership engaged in the gathering, transportation, and processing of natural gas; the transportation, fractionation, marketing, and storage of natural gas liquids; and the gathering and transportation of crude oil. MarkWest has extensive natural gas gathering, processing, and transmission operations in the southwest, Gulf Coast, and northeast regions of the United States, including the Marcellus Shale, and is the largest natural gas processor and fractionator in the Appalachian region.

About The Energy & Minerals Group

The Energy & Minerals Group is a highly specialized private equity firm that focuses exclusively on investing across various facets of the global natural resource industry that are integral to the global economy. Upon completion of the aforementioned transaction, EMG will have $6.2 Billion of total investor commitments (including co-investments) with in excess of $3.1 Billion deployed across the energy complex since inception. For additional information on EMG, please contact Alexandra Coolidge at 713-579-5029.

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