Two natural gas midstream processing companies are forming a $1.5 billion joint venture to provide services to natural gas producers operating in Ohio's Utica Shale, the companies announced Thursday.
Dominion Resources Inc. of Virginia and Caiman Energy II LLC of Dallas said they expect to close the deal they are calling Blue Racer Midstream LLC by the end of the year.
The venture will help companies gather, process, transport and sell natural gas liquids. The expanded pipeline system could be expanded to transport at least 2 billion cubic feet of natural gas per day.
Officials at oil and natural gas producers making inroads locally in the Utica Shale Play, such as BP and Consol Energy, have expressed the need for more midstream infrastructure including pipelines to get the products to market.
BP officials last week said while existing pipelines can be accessed, there is a need for growth in the long term.
''We would have to look to expand the existing infrastructure in order to manage the product,'' said BP's Ohio Operations Manager Joe Uppercue.
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Caiman Energy II LLC focuses on the design, construction, operation and acquisition of midstream assets in the Utica Shale.
Dominion is one of the nation's largest producers and transporters of energy, with 11,000 miles of natural gas pipeline and 6,300 miles of electric lines.
''Significant infrastructure is going to be required to bring the initial products to market,'' echoed Bruce Abbuhl, BP Ohio Project Manager. ''The limited infrastructure will quickly outpace the development.''
Under the deal announced Thursday, Dominion will contribute the pipelines and other assets, and Caiman will provide the funding, according to information released by Dominion. Two of the biggest Dominion assets include a natural gas processing plant being built in Marshall County, W.Va., and an interstate gas pipeline that connects the plant to Dominion's Ohio pipeline system.
"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."
"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," said Jack Lafield, Caiman's chairman and chief executive officer.
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.
The venture combines Caiman's and Dominion's plans to collect raw gas and extract valuable liquids like ethane and propane produced from drilling in the Utica.