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First Reserve Pours $100M into JV

First Reserve Corp. is pouring $100 million into a joint venture with Energy Corp. of America, focused on energy infrastructure in the Marcellus shale region, Reuters reported Tuesday. First Reserve will hold a 50% stake in the two natural gas gathering systems in Pennsylvania. First Reserve is making the investment through its $1.2 billion infrastructure fund.

(Reuters) – Energy-focused private equity fund First Reserve Corp is investing $100 million in a joint venture with privately held Energy Corp. of America (ECA) focused on energy infrastructure in the Marcellus shale region.

Through the joint venture, First Reserve said it will pick up a 50 percent stake in two new natural gas gathering systems in Pennsylvania.

North American shale fields — geological formations that may hold vast quantities of oil and gas — are drawing billions of investment dollars from companies looking to tap into the possibly lucrative fields.

First Reserve is making the investment through its $1.2 billion infrastructure fund. First Reserve managing director Mark Florian said that gathering systems and other infrastructure to collect, move and store natural gas — known in the oil industry as ‘midstream’ assets — represent an important opportunity for the fund.

“The midstream assets are important to (exploration & production companies) in terms of being able to handle the delivery of gas to market, but at the same time, it’s not their core business. So we do feel this is representative of an opportunity in the U.S., in Canada, and parts of Europe,” Florian said in an interview.

He said the fund is not initially using any debt to finance the $100 million tab.

“This is 100 percent equity funded,” Florian said. He noted that First Reserve could do a debt financing for the investment somewhere down the line, but “even in the absence of any debt, this fits our return profile.”

The Marcellus shale is an underground rock formation that stretches across much of Pennsylvania, as well as into portions of New York and West Virginia. Drilling in the Marcellus accounted for 271.5 billion cubic feet of natural gas during the last six months of 2010 (1.5 bcf per day).

ECA is one of the largest private companies with acreage in the Marcellus shale. The two companies plan to explore further opportunities in gathering systems in the Marcellus, which Florian said was a particularly attractive region to First Reserve.

He said First Reserve was also looking at other midstream assets.

“We are actively working on a number of other situations where we see great companies, where we have a relationship and where we can try to craft something similar to this. It may be for gathering systems, it may be for other types of pipeline systems, processing or storage,” Florian said. “The key for our fund is to have long-term contracts where we have a lot of revenue certainty.”

First Reserve’s infrastructure fund has more modest return targets than its buyout fund, but it is focused on receiving cash returns from it investments.

Therefore, Florian said the long-term contracts the joint venture has with ECA are important.

“We essentially have a specified amount of revenue that we know we’ll be getting for the next 10 or so years,” Florian said. (By Michael Erman; Editing by Steve Orlofsky)