Veresen said it has formed a new entity, Veresen Midstream Limited Partnership, which will be owned equally by Veresen and affiliates of Kohlberg Kravis Roberts & Co.
Veresen Midstream has entered into definitive agreements to acquire certain natural gas gathering and compression assets supporting Montney development in the Dawson area of northeastern British Columbia from Encana Corporation and the Cutbank Ridge Partnership, a partnership between Encana and and Mitsubishi’s unit Cutbank Dawson Gas Resources.
Veresen Midstream has also agreed to undertake up to $5 billion of new midstream expansion for Encana and CRP in the Montney region under a 30-year fee-for-service arrangement.
Veresen will fund its interest in Veresen Midstream by contributing its Hythe/Steeprock gathering and processing assets valued at $920 million, and in exchange will receive from Veresen Midstream $420 million, resulting in a 50% equity position valued at $500 million. KKR will fund its 50% interest in Veresen Midstream by contributing $500 million in cash. Concurrently, Veresen Midstream will acquire gathering and compression infrastructure and ongoing construction projects from Encana and CRP in the Dawson region of the Montney in British Columbia for total cash consideration of approximately $600 million, plus actual costs accrued in 2015. This infrastructure is located adjacent to the Hythe/Steeprock assets.
In addition to cash on hand, acquisition of this infrastructure will also be funded from new Veresen Midstream credit facilities.
Veresen Midstream and CRP will enter into a Midstream Services Agreement (Dawson MSA) with respect to the newly acquired infrastructure and future infrastructure to be constructed within an area of mutual interest. The existing midstream services agreement between Veresen and Encana relating to the Hythe/Steeprock assets remains unchanged, with Veresen Midstream operating the Hythe and Steeprock plants.
Veresen Midstream will commit to fund up to $5 billion of new infrastructure within the AMI to service CRP’s planned production growth, including gas gathering pipelines, compression and processing facilities. Veresen Midstream’s commitment to investments in compression and processing facilities is limited to projects that commence within the next six years. All new infrastructure investment is underpinned by the Dawson MSA which provides for strong expected returns on capital, a production dedication within the AMI and financial protections.
These transactions are expected to close in the first quarter of 2015.
Press Release; Image: Encana