Crestwood Midstream Partners to Buy Stake in Jackalope from RKI

Crestwood Midstream Partners LP said on Monday that its subsidiary, Crestwood Niobrara, has entered into an agreement to buy a 50% stake in Jackalope Gas Gathering Services, L.L.C. from RKI Exploration & Production, LLC for approximately $108 million. The transaction is expected to close during the third quarter of 2013. Jackalope, which is backed by First Reserve, an indirect general partner to Crestwood, is a Wyoming-based provider of gathering and processing systems with access to the Powder River Basin Niobrara Shale.

PRESS RELEASE

HOUSTON, June 24, 2013 /PRNewswire/ — Crestwood Midstream Partners LP (NYSE: CMLP) (“Crestwood” or the “Partnership”) today announced that its subsidiary, Crestwood Niobrara LLC (“Crestwood Niobrara”), has entered into an agreement to acquire a 50% interest in Jackalope Gas Gathering Services, L.L.C. (“Jackalope”) from RKI Exploration & Production, LLC (“RKI”) for approximately $108 million. RKI is a privately-owned, independent exploration and production company focused in the Powder River, Permian and Denver-Julesberg Basins in which First Reserve owns a significant minority ownership position. First Reserve is a premier energy-focused private equity firm that is also Crestwood’s indirect general partner and largest common unit holder. The Jackalope gathering and processing system (“Jackalope System”), located in Converse County, Wyoming, provides Crestwood with an early-stage entrance into the emerging Powder River Basin Niobrara Shale play and positions Crestwood for significant future infrastructure development opportunities across the rich gas and crude oil midstream value chain. The acquisition is expected to close during the third quarter of 2013, subject to customary regulatory approvals.
The other 50% interest in Jackalope is owned by Access Midstream Partners, L.P. (“Access”), which acquired its interest in Jackalope in December 2012 from Chesapeake Energy Corporation (“Chesapeake”). As a part of this transaction, Access will continue to provide field operations and construction management for Jackalope and Crestwood will assume the commercial development role 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. The Jackalope System is being developed to gather and process rich natural gas produced from a 311,000 acre area of dedication in Converse County where RKI and Chesapeake have focused the majority of their drilling activity to date. The Jackalope System is currently composed of approximately 100 miles of gathering pipelines and 9,400 horsepower of compression equipment with near-term plans to install a new gas processing facility and continued expansion of the gas gathering system. 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.
“As we announced last year, Crestwood has been focusing its development efforts on rich gas plays such as the Powder River Basin Niobrara Shale,” stated Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood’s general partner. “This transaction is an important next step in the development of that strategy and positions Crestwood in a growing play with an experienced midstream partner supported by a long-term contract and large acreage dedication being developed by very capable shale producers.
“The Jackalope System, while in its early build-out stage, provides significant visibility to cash flow growth as midstream infrastructure is expanded to support Chesapeake and RKI’s aggressive development plans. With approximately 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, we believe this investment has the potential to be another great, high-growth shale play like our Marcellus position.”
Phillips continued, “We are also pleased to partner with Access on this important development project. Access’ long operating experience with Chesapeake, combined with Crestwood’s business development resources, will allow Jackalope to capitalize on future rich gas gathering and processing development opportunities throughout the emerging Powder River Basin play.
“In addition, 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, L.P. and Inergy Midstream, L.P., which specialize in these value chain midstream services.”
In connection with the acquisition and expected future infrastructure development, GE Energy Financial Services has 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. No additional capital markets activity will be required by Crestwood in connection with this acquisition.
Additionally, because of First Reserve’s investment in both RKI and Crestwood, the transaction was evaluated by and unanimously approved by the Conflicts Committee of Crestwood’s general partner, which is composed entirely of independent directors. In connection with the Conflicts Committee’s review, Robert W. Baird & Co. Incorporated was engaged as its independent financial advisor and rendered a fairness opinion. The law firm of Morris, Nichols, Arsht & Tunnell LLP served as legal counsel to the Conflicts Committee for the transaction.
About Crestwood Midstream Partners LP
Houston, Texas based Crestwood is a growth-oriented, midstream master limited partnership which owns and operates predominately fee-based gathering, processing, treating and compression assets servicing natural gas producers in the Barnett Shale in north Texas, the Fayetteville Shale in northwest Arkansas, the Granite Wash in the Texas Panhandle, the Marcellus Shale in northern West Virginia, the Avalon Shale/Bone Spring in southeastern New Mexico, and the Haynesville/Bossier Shale in western Louisiana. For more information about Crestwood, visit www.crestwoodlp.com.