Crestwood Announces Contribution of Willow Lake Assets to Delaware Basin Joint Venture with First Reserve and Expansion of Processing Capacity

Source Press Release
Company Crestwood Equity Partners LPFirst Reserve Corporation 
Tags Asset Deals, Deals, Pipelines/ tankers/ distribution, LNG & Gas Storage/Processing
Date May 24, 2017

Crestwood will contribute its Willow Lake gathering and processing assets to the Permian joint venture between Crestwood and First Reserve

The joint venture will finance and build a new 200 MMcf/d cryogenic gas processing plant near Orla, TX and related infrastructure

Creates large-scale integrated midstream footprint covering the core of the Delaware Basin

Crestwood Equity Partners LP (NYSE:CEQP) (“Crestwood Equity” or “Crestwood”) and First Reserve today announced that Crestwood Permian Basin Holdings LLC (“CPJV”), a joint venture focused on developing, owning and operating midstream infrastructure in the Delaware Basin, has agreed to acquire Crestwood’s Willow Lake gathering and processing assets located in Eddy County, New Mexico. Crestwood and First Reserve, a leading global private equity and infrastructure investment firm exclusively focused on energy, also announced that the joint venture has fully sanctioned the construction of a 200 million cubic feet per day (“MMcf/d”) cryogenic gas processing plant located near Orla, TX (the “Orla Plant”) and related infrastructure required to connect the Willow Lake system to the plant (the “Orla Express Pipeline”) and multiple third-party pipelines. Upon completion of the project the joint venture’s integrated gathering and processing footprint will span more than 100 miles and service customers across Eddy and Lea counties, NM and Loving, Ward, Reeves and Culberson counties, TX.

Management Commentary

“The announced Orla processing plant and the contribution of Willow Lake to our Permian joint venture with First Reserve is an important step in Crestwood’s strategy of expanding and integrating our Delaware Basin footprint to create a super system that spans over two million acres located in the heart of the most active development counties in the Delaware Basin,” stated Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood’s general partner. Mr. Phillips added, “Dropping the Willow Lake assets into our joint venture is consistent with our strategy of prudently pursuing organic growth opportunities while managing risk and maintaining balance sheet strength. As we continue to build out a large integrated platform in the Delaware Basin, Crestwood and First Reserve are aggressively evaluating new organic expansion opportunities for existing and new customers that will further expand our Permian presence and drive meaningful cash flow growth beginning in 2018.”

Gary Reaves, Managing Director of First Reserve, stated, “First Reserve is excited to expand the size and scale of our Permian joint venture with Crestwood. This project, which expands the scope and adds processing capabilities to our joint venture, creates a Delaware Basin infrastructure footprint that we believe is ideally positioned to provide superior netbacks to our customers. It also will allow us to capitalize on incremental organic growth opportunities over the next 12 months in the Delaware Basin which, in our view, is currently the most attractive onshore resource play in the United States. As general partner of Crestwood, we remain highly committed to the long-term success of Crestwood and we believe the joint venture is well-positioned to generate accretive growth in the Delaware Basin that will generate substantial value for all of Crestwood’s stakeholders.”

Orla Expansion Project

The initial project scope will include the Orla Express Pipeline, a 33 mile, 20 inch high pressure line connecting the existing Willow Lake gathering system in Eddy County, NM to the Orla plant. The Orla plant will offer full liquids handling and multiple residue and NGL interconnects. Initial project capital is expected to be approximately $170 million with an in-service date in the second half of 2018.

The Orla Plant is supported by current dedications from existing Willow Lake customers, including Concho Resources Inc., Mewbourne Oil Company, Matador Resources Company, Cimarex Energy, Marathon Oil Corporation, and Exxon Mobil Corporation and is strategically located to attract processing volumes in Eddy County, NM as well as around the Orla Express Pipeline and Nautilus system, a new gas gathering system for a subsidiary of  Royal Dutch Shell (SWEPI) in Loving and Ward counties, Texas. The Orla Plant will provide needed incremental processing capacity and enhanced netbacks to producers through improved connectivity to the best NGL and residue gas takeaway options out of the basin.

Willow Lake Assets Contributed to CPJV

Under the terms of the transaction, the joint venture will continue to be owned 50% by Crestwood and 50% by First Reserve. First Reserve will fund 100% of the initial capital requirements during the early-stage build-out of the Orla expansion, after which Crestwood will fund 100% of capital requirements until both parties have made an equal amount of capital contributions. In connection with the expansion, Crestwood will contribute its Willow Lake gathering and processing assets to the joint venture at a value of $151 million, and this value will be credited as part of Crestwood’s capital requirements to the joint venture. Capital requirements thereafter are expected to be funded 50/50 by Crestwood and First Reserve. Crestwood will continue to receive 100% of the available cash flow generated by the Willow Lake assets until the earlier of the Orla plant in-service date or June 30, 2018, at which time the parties will receive distributions on a 50/50 basis.

Following the closing of this transaction, the joint venture will own all of Crestwood’s Delaware Basin assets, which include the Nautilus gas gathering system and the Willow Lake gas gathering and processing system (including the announced gas processing plant and Orla Express Pipeline). Once the Orla plant is placed into service, the joint venture’s asset footprint will include over 200,000 acres of dedication, 255 MMcf/d of processing capacity, 300 MMcf/d of gathering capacity, and over 360 miles of pipe.

The Conflicts Committee of Crestwood’s Board of Directors unanimously recommended this transaction, and the board unanimously approved the transaction. The Willow Lake contribution is subject to anti-trust review, and the parties expect to close the transaction in June 2017.

Source: EvaluateEnergy® ©2020 EvaluateEnergy Ltd